Buying Afterpay is the key to future success

Square posted good results for the second quarter. The company’s revenue reached $ 4.68 billion, compared with $ 1.92 billion a year earlier. The consensus forecast of analysts provided for the figure at the level of $ 5.03 billion. Net income in April-June was $ 204 million, or 40 cents per share, compared with a loss of $ 11.5 million, or 3 cents per share in the same period a year earlier. Adjusted earnings were 66 cents per share, up from 18 cents per share a year earlier. Analysts on average had forecast an indicator of 31 cents per share.

Square has agreed to buy Australian fintech company Afterpay in an approximately $ 29 billion deal. Afterpay specializes in installment payments. Square’s report says the deal’s appeal stems from the growing apprehension of younger consumers about traditional forms of credit. Afterpay technology gives users the ability to pay for goods using four payments without interest, while receiving them immediately after purchase. Consumers pay a commission if they miss the due date. The company receives the bulk of its revenue from retailers, who pay a percentage of the value of each item the customer chooses, as well as a flat fee.

The Afterpay purchase is the largest in Square’s history and, in our opinion, quite justified. Square has long been looking for ways to more closely connect its Cash App and merchant ecosystems. The number of monthly active users of Cash App in June reached 40 million. Gross profit in the second quarter was $ 546 million, an increase of 94% compared to the second quarter of 2020. We forecast that the company will be able to achieve significant synergies that will drive long-term gross profit growth, so we improve our valuation of Square’s share price from $ 266 to $ 363.

Square is a payments platform and commerce ecosystem, primarily providing payment acceptance solutions to SMBs (“sellers”). Beyond payments, Square offers value added services including business loans (Square Capital), and software offerings (payroll, appointments, etc.) as well as hardware (Square Register, etc.). Increasingly SQ’s Consumer business (Cash App) that services consumers with P2P money transfers, a debit like card, stock trading, bitcoin trading and more, is a focus of the company.