Square stock forecast: will brave investments pay off?

The Square stock forecast is upbeat following impressive Q4 results – but how have the markets reacted to its multimillion-dollar investments in cryptocurrencies and Tidal?

The Square stock forecast couldn’t have foreseen the explosion in value that the payments company has enjoyed over the past 15 months. Square’s stock price started January 2020 with a modest price tag of $63 – and by December 31, it had more than trebled to $217. But SQ was not done, not by any stretch of the imagination. As 2021 got underway, we saw the stock reach a new 52-week high of $283.19.

So: what is the short-term noise that’s dominating the Square share price forecast – and, more importantly, how is the long-term outlook looking? Here, we’re going to wrap up all of the latest news stories that are affecting the stock and explore top predictions on what’s going to happen over the next 12 months.

Square stock predictions: promising figures

Run by Jack Dorsey, who also serves as the CEO of Twitter, Square’s sudden boost in popularity is undoubtedly linked to the coronavirus pandemic. As infections started to go global last year, the use of cash became frowned upon by retailers who remained open. Meanwhile, the stores that were forced to close ended up quickly setting up a presence online – and Square helps to deliver the infrastructure that makes this happen.

Let’s take a look at how Square managed to perform in the final quarter of 2020, and across the year as a whole. The platform generated a very healthy gross profit of $804m in Q4 – that’s up 52 per cent year-on-year. Of that, about $377m came from its Cash App, which enjoyed a 162 per cent bump in sales. As of December, the company said that it had more than 36 million users who were transacting through the Cash App each month. One potential sting in the tail came in the form of net income. Over Q4, this stood at $294m – down 25 per cent on the year before.

Highlighting a series of initiatives that have been launched by the platform – including a $100m fund for investing in minority and underserved communities – the company said: 

“Throughout 2020 we were guided by our purpose of economic empowerment … In 2021, we are focusing our investments on customer acquisition and product innovation. We have achieved attractive returns on our sales and marketing investments as customers have turned to our ecosystems to help them in dynamic environments, and we intend on continuing to expand and strengthen our product offerings.”

Square stock forecast 2021: big news

Moving beyond the financials, Square stock projections have been influenced by two other significant announcements.

The first came when the company announced that it was doubling down on its exposure to Bitcoin. Square, which as a crypto-friendly brand already allows people to purchase crypto through the Cash App, announced in February that it was planning to invest another $170m in BTC, buying 3,318 coins. Here’s an especially staggering statistic: at the time of its $50m purchase last October, they paid 70 per cent less for 40 per cent more Bitcoin. Imagine the profits they would have generated if they had moved even earlier.

As we noted in a recent article, it is possible that Square’s stock price is now being influenced by fluctuations in the crypto markets. The 52-week highs of $283 came days before Bitcoin broke records by accelerating to $58,330 – and both fell in lockstep with each other as February drew to a close. That said, the threat of rising bond yields had contributed to a wider slump across tech stocks and risk-on assets such as Bitcoin, so the crypto acquisition isn’t the only factor at play here.

Square has perhaps come in for less criticism than Tesla has with its Bitcoin buy-in because of how it is also investing aggressively in making the cryptocurrency more eco-friendly. This is being achieved through the Bitcoin Clean Energy Investment Initiative, which plans to support companies working on green energy technologies within the mining space. Given how much electricity the Proof-of-Work process uses, such good PR is rather essential.

Another headline-grabbing factor in the Square stock forecast concerns the company’s surprise announcement that it is snapping up a majority stake in the streaming music platform Tidal for a whopping $297m. At the time, Dorsey said that he was determined to deliver economic empowerment to musicians – “finding new ways for artists to support their work”.

It remains to be seen how Square intends to shake up Tidal, which has been lagging behind more established providers such as Apple and Spotify. It’ll be interesting to see whether the company moves to sweeten the royalties that artists receive whenever their songs are streamed. The announcement also came as Kings of Leon became the first band to release an album in the form of a non-fungible token. Given Square’s crypto-friendly stance, is the company going to vie to become a dominance force in making NFTs mainstream in music? 

Square stock: buy or sell?

Some analysts took an exceedingly dim view of the Tidal acquisition, arguing that it simply doesn’t make much sense. But others argue that Square might have been quite canny here – they’ll be able to appeal to a younger user base and cross-sell between platforms.

When it comes to the Square stock price forecast for the coming 12 months, the picture appears to be optimistic yet cautious. According to CNN Business, the median target for the stock stands at $271 for March 2022 – up 20 per cent from the current level. The high-end Square stock forecast indicates that we’ll see shares surge to $380, up 68.2 per cent. A more pessimistic perspective sees SQ tumble 31.4 per cent to lows of $155 over the next year.

And let’s wrap up with analyst recommendations. At present, 24 analysts rate the stock as a buy, and one says it will outperform the market. Seventeen have a hold rating in place, one analyst says the stock will underperform and three have a sell rating.

Don’t forget that Joe Biden’s $1.9trn economic stimulus package – which will see eligible Americans receive a cheque for $1,400 in the post – could have a positive effect on Square’s bottom line.

As Deutsche Bank’s Brian Keane said in February:

“Beyond the strong engagement from stimulus, we expect Cash App to benefit from monetizing new users, cross-selling products across the platform, and expansion into new products over time.”

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FURTHER READING: HPE share price forecast: the Covid effect
FURTHER READING: Is Bitcoin a good investment for big corporations?

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