UPWK – Base Case iCDS 131bps, Negative Case iCDS 157bps, 2026 0.250% Bond YTW of 7.560%, iYTW of 4.976%, Low Refinancing Need

February 14, 2023

  • Credit markets are overstating SQ’s credit risk with a YTW of 5.754% relative to an Intrinsic YTW of 4.694% and an Intrinsic CDS of 72bps. Furthermore, Moody’s is overstating SQ’s fundamental credit risk with its speculative Ba2 credit rating four notches below Valens’ IG4+ (Baa1) credit rating. 

  • Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. Most management members are material owners of SQ equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company. Furthermore, most members of management have low change-in-control compensation relative to their annual compensation. This indicates they may not be incentivized to pursue or accept a takeover or sale of the company, decreasing event risk for creditors.

  • Earnings Call Forensics™ of SQ’s Q3 2022 (11/03/2022) call highlights that management is confident strong inflows are leading to Cash App growth, sign-ups for the Cash App Card has increased direct deposits on the app, and that gross profit increased 46% on a 3-year CAGR basis.

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