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Why Square Stock Is Rising Today

By Brian Feroldi - Mar 25, 2020 at 11:47AM

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Shares jump after the company sheds some light on how the COVID-19 pandemic is impacting its results.

What happened

In response to updated financial guidance, shares of Square (SQ -2.54%), a high-growth financial services business, rose as much as 20% in early morning trading on Wednesday. As of 11:15 a.m. EDT, shares were up about 16%.

So what

Square's stock has been under a huge amount of selling pressure over the last month over fears that the COVID-19 pandemic was going to seriously impede its growth.

Square provided investors with update numbers yesterday that helped put the decline in context.

Here are the key takeaways:

  • Gross profit grew 47% in January and February. However, the momentum reversed itself in mid-March. Over the last 10 days, seller gross payment volume (GPV) declined by about 25%, with "greater declines in recent days." This has offset the relative strength in its Cash App ecosystem.
  • Square now expects first-quarter 2020 revenue to land between $1.3 billion and $1.34 billion. That's down from its prior outlook of $1.34 billion to $1.36 billion.
  • Gross profit in Q1 2020 is expected to land between $515 million and $525 million. This is down from its prior outlook of $550 million to $560 million.
  • Q1 2020 net loss per share, adjusted EBITDA, and adjusted earnings per share are expected to land below management's guidance ranges that were issued on March 5, 2020.
  • Full-year 2020 guidance has been withdrawn. The updated guidance will be provided in its first-quarter earnings call in May.

Management also noted that these new ranges assume "a further deceleration in overall GPV."

Silhouette of a bull on a financial sheet.

Image source: Getty Images.

Square's stock is likely jumping today because traders were expecting the business declines to be even worse than what was reported.

It also probably doesn't hurt that the White House and Senate announced they have reached a deal on a $2 trillion stimulus package to help soften the economic impact of the pandemic.

Now what

There's no doubt that 2020 is going to be a challenging year for Square. It's entirely possible that some of Square's customers might not be able to ever recover from the detrimental economic impacts of the novel coronavirus, which could impede Square's growth for a while.

However, it's also possible that some of Square's competitors might be seriously harmed by the novel coronavirus as well. If true, that could put Square in a strong position to capture market share in a recovery.

With $59 billion up for grabs, Square hypergrowth might ramp up quickly once the recovery swings into high gear.

Brian Feroldi owns shares of Square. The Motley Fool owns shares of and recommends Square and recommends the following options: short September 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

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