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This Is Why Square's Acquisition of Afterpay Makes Sense

By Jose Najarro – Aug 5, 2021 at 10:00AM

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Investors have reacted positively to Square's acquisition move.

Square (SQ -2.91%) reported on Aug. 1 that it is acquiring Afterpay (AFTP.F), a "buy now, pay later" company. In today's video I look at Square's acquisition presentation and talk about some of the strong and weak points presented to investors. Below, I share some highlights from the video. 

  1. Afterpay brings news solutions for Square to offer in both its Seller and Cash App ecosystem. Afterpay has a strong presence in Australia, New Zealand, and the U.K., accelerating Square's international growth as Square's most substantial presence is in the U.S. Finally, most sellers using Afterpay's platform are enterprise merchants, which Square is focusing on growing. 
  2. Many investors are worried about the high valuation being paid for Afterpay. Investors should remember that Square is expected to pay for this acquisition through an all-stock deal, and Square stock is trading at a high multiple when looking at the price-to-sales ratio. 
  3. The deal is expected to close in the first quarter of the calendar year 2022. The current leadership of Afterpay will still run the respective Afterpay business under Square's Cash App and Seller ecosystem. 

Click the video below for my full thoughts and analysis. 

*Stock prices used were the premarket prices of Aug. 3, 2021. The video was published on Aug. 3, 2021.


 

Jose Najarro owns shares of Square. The Motley Fool owns shares of and recommends AFTERPAY T FPO and Square. The Motley Fool has a disclosure policy. Jose is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

Stocks Mentioned

Block Stock Quote
Block
SQ
$61.30 (-2.91%) $-1.84
Afterpay Limited Stock Quote
Afterpay Limited
AFTP.F

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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