'We keep waiting for a shot, but Square has been too good': Here's what Wall Street is saying about Square disappointing guidance

Goldman Sachs

• Price target: $108
• Rating: Buy

"Continued revenue acceleration plus healthy 2019 outlook should move the stock higher," said James Schneider at Goldman Sachs.

"We believe the ongoing acceleration in revenue growth will continue to dominate the narrative on the stock, especially in light of uneven revenue performance across growth stocks in the broader technology sector. In addition, we believe management’s healthy preliminary outlook for 2019 should bolster investor confidence in the sustainability of Square’s growth story in the medium term."

RBC Capital Markets

• Price target: $95
• Rating: Outperform

"Square posted another solid quarter in which adjusted revenue again inflected up, driven by significant growth in subscription & services," RBC analyst Daniel Perlin said.

But he noted that there are three main uncertainties for Square: macroeconomic concerns, competition, and execution risks.

"Since Square's business model is intimately tied to micro and small businesses, a slowdown in consumer retail sales could impede the achievement of our price target. Additionally, we note that: (a) payments is a very competitive landscape; (b) payments is also highly regulated; and (c) Square is dependent on services from the networks and merchant acquirers that may become competitors.

"Finally, we note execution risk associated with: (a) the CEO’s dual leadership roles; (b) history of losses; and (c) the positive effects of software & data products revenue included in our model."

Jefferies

• Price target: $88
• Rating: Hold

"The guidance, particularly around EBITDA and the associated margins, suggests the company may need to invest faster and deeper to accomplish its goals," Jefferies analyst John Hecht said.

"3Q18 exhibited upside on revenue while Square continues to invest in the business at a pace which impacts EBITDA and operating margins."

He continued: "Top-line trends, specifically strong gross payment volume and an increased contribution from S&S enabled the 2018 revenue guide increase but we note that slightly lower margins versus prior guide may mute the reaction to the quarter."

Stifel

• Price target: $100
• Rating: Buy

"We continue to be impressed with Square’s efforts to expand its addressable market and extend its long-term growth opportunity with the development of new products/ features," said analyst Scott Devitt at Stifel.

"We expect the company to continue to execute on the top line, with the extension of products/services and geographic expansion, while ongoing tailwinds from the secular shift to electronic payments as well as the transition to Europay, Mastercard, and Visa should benefit growth. Results have demonstrated the company’s ability to gain share among larger merchants, while the micro-merchant opportunity remains large."

SunTrust Robinson Humphrey

• Price target: $84 (from 74)
• Rating: Hold

"We keep waiting for a shot, but Square has been too good," said Andrew Jeffrey, an analyst at SunTrust Robinson Humphrey.

"Square's ecosystem value proposition is increasingly resonating with a broad swath of Server Message Blocks and consumers, in our view, evidenced by another quarter of accelerating rev growth. Square is beating ever-rising revenue estimates and re-investing upside. Our Hold reflects a view that Square's valuation discounts much of this growth and does not contemplate any potential disruption."

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