Shares of financial services company Square saw its shares hit a record high this week after an analyst gave an optimistic view on the company’s Cash App potential.
The company has been seeing surging interest in its Cash App, a peer-to-peer platform that lets users transfer money, activate debit-card rewards and invest in bitcoin or equities. Square allows users to get their paychecks direct-deposited through the app and also made it an option for people looking to receive their one-time pandemic stimulus payments digitally.
MoffettNathanson analyst Lisa Ellis has raised her price target to $120 from $90 on the stock. Ellis wrote in a note to clients, “We believe Cash App has a value proposition as a digital alternative to a traditional retail bank that resonates with a segment of consumers that value Cash App’s digital-first, user-centric design, and financial services centered on the principles of immediate money movement (e.g., P2P payments, instant deposit), and accessibility (e.g., fractional investing).”
MoffettNathanson says Cash App could have 60 million users and 30 million Cash Card holders by the time it hits scale
Ellis’ price increase implies an enterprise value of about $53 billion, she said, of which the Cash App contributes $27 billion to $30 billion, or more than half her total.
Recently Ellis had meetings with Square Chief Financial Officer Amrita Ahuja and Cash App Lead Brian Grassadonia. She now estimates that the Cash App could generate roughly $5 billion in annual revenue and about $2 billion in annual earnings before interest, taxes, depreciation, and amortization once the platform reaches scale, which she said could occur in five to seven years.
According to the analyst’s estimates, Square could have 30 million Cash Card users by the time the platform scales, which is “comparable to Chase’s current digital banking base.”
Also this week Rosenblatt Securities analyst Kenneth Hill upgraded the stock to buy from neutral, arguing that the potential for Square’s Cash App “can’t be overlooked,” while “retail proxies have pointed to less Draconian expectations” for the seller business amid the pandemic.
Disclaimer: We have no position in Square Inc. (NYSE: SQ) and have not been compensated for this article.