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SQ – Market expectations are for Uniform ROA expansion, but management may be concerned about their Cash App, Seller ecosystem, and customer retention

July 14, 2020

  • Square, Inc. (SQ:USA) is currently trading at a historical high relative to UAFRS-based (Uniform) earnings, with a 194.9x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their Cash App, demand, over-all Seller ecosystem, and customer retention
  • Specifically, management may lack confidence in their ability to sustain GAAP international revenue, provide new tools for their customers, and improve their Seller ecosystem. Furthermore, they may have concerns about the sustainability of Cash App demand through hairdressers and beauticians’ video appointments, artists’ online performance, and artists sending money. Also, they may be overstating the opportunity to bring new sellers in their ecosystem. Finally, they may be concerned about their ability to maintain average business loan sizes related to the stimulus program, and their loss reserve being four times higher than the prior quarterly run rate

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