Payments company Square announced on Wednesday that it is buying Credit Karma’s tax unit
Credit Karma Tax for $50 million cash.
Credit Karma Tax provides a free do-it-yourself tax-filing service and will go into Square’s Cash App unit.
“The acquisition provides an opportunity to further digitize and simplify the tax-filing process in the U.S., expanding access to the one in three households which are unbanked or underbanked,” Square stated.
Despite the news, Morningstar analyst Brett Horn says the stock is overvalued.
“Narrow-moat Square generated good growth in the third quarter, despite the pandemic,” he wrote after the company reported earnings earlier this month.
“We are particularly impressed with the performance of the Cash App platform, and after reviewing our assumptions, we’re raising our fair value estimate to $78 from $64.”
While Horn may not be so bullish on the stock, Mizuho analyst Dan Dolev has increased his price target on Square from $225 to $300 as the company’s Cash App goes into territory that PayPal Holdings Inc. has been popular in.
Analzying Google search trends, Dolev believes that Square’s Cash App searches are growing in densely-populated states.
According to MarketWatch, as of April this year, Cash App reportedly accounted for 60% of searches, while in 2017 and 2018 it made up for nearly 40% of searches for either Venmo or the Cash App.
Dolev says that Cash App broadening its monetization strategy. Previously the company’s profits came from users paying a fee to transfer money out of the app, which made up for only 54% of gross profit in the latest quarter.
There is an increased shift towards the company’s Cash Card debit card and its Cash App business platform, for which businesses pay a fee, according to Dolev’s estimates.
Cryptocurrency bitcoin revenue has accounted for nearly 80% of the Cash App’s $2.07 billion in revenue. Earlier this month Square said its Bitcoin revenue spiked 1100% in the third quarter over the same period last year.
Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.