BTIG fintech analyst Mark Palmer was bearish on Square (SQ) since 2017, frequently citing potential downsides to the company despite its meteoric growth. (Square was Yahoo Finance’s 2018 Company of the Year; shares rose 55% that year.)
Now Palmer has changed his mind about the stock. Last week he improved his rating to buy neutral, with a price target of $ 220. (Shares are now hitting around $ 214.)
The buy score represents an evolution of Palmer’s thinking that began when he upgraded the stock to neutral to sell mid-March. By this time, Square shares had fallen at the start of the pandemic and Palmer was simply adjusting his rating because he felt the stock looked more correctly priced after its sharp drop. BTIG predicted that Square would continue to be burned down by the pandemic along with the small businesses it serves.
Then Square’s merchant clientele rebounded faster than expected.
Now Palmer tells Yahoo Finance that his optimism is based on Square’s Cash app and the two groups of customers it serves: people without bank accounts; and new cryptocurrency investors.
Cash App is “a game changer” for “unbanked and underbanked consumers” and “essentially serves as a proxy bank account when they have no other option,” Palmer said Wednesday on Yahoo Finance Live. “It really showed up when the stimulus payouts were handed out.”
Square allowed consumers to deposit their stimulus check directly into Cash App. This service has helped attract many new users to Cash App, as has its adoption of bitcoin. Square first adding bitcoin buying and trading to the Cash app in 2018, and the third quarter of 2020 was its first quarter with over $ 1 billion in bitcoin revenue. (This year he has doubled bitcoin again by buying it for $ 50 million for the company’s balance sheet.)
“What you are seeing now is … you really have a dumbbell effect between the unbanked and underbanked on one side, and cryptocurrency traders on the other,” says Palmer, “and that’s a very powerful combination.”
Through the service of these two groups, Palmer says, “We believe the Cash app positions Square to be a great app and goes far beyond just facilitating peer-to-peer payments for something big. bigger, like Alipay in China. “
It is an extremely bullish comparison. Alipay is the world’s largest mobile payments app, and its parent company Ant Group was set for a $ 34.5 billion dual IPO in Shanghai and Hong Kong this month, before Chinese regulators put an end to it.
Palmer quotes Square Acquisition of Credit Karma’s fiscal unit for $ 50 million this week as the last sign of these great ambitions.
Daniel Roberts is a senior editor at Yahoo Finance and covers fintech and bitcoin closely. Follow him on Twitter at @read Danwrite.