Hello! /u/lykosen11 here!
While I am full up in my own studies, I haven’t had time to finish the write-up I am currently working on, for Mastercard Inc (Ticker: $MA). However, one of my favorite companies, under quite a bit of reddit hype released their annual 10K. I just wanted to get my thoughts on the company as of today 06-03-2018 (eu date).
Square inc 10K
Square gave a great year, both in stock performance and business performance. The later is the only one that matters if you already own the stock, as it should. The year over year performance have no effect on you as a shareholder, unless you plan to buy additional shares. We see Square being up 7% after it’s jump, a bit after their annual report. So, what did the annual report tell us? Well, to start up the EPS beat expectations by a cent, ending up at $0.08 adjusted. This number is what new people usually look at, however it’s meaning is close to nothing. Earnings, while always being great, is not how square is evaluated as a growth company. Growth is. That is why my eyes falls on the fantastic numbers of 96% growth in subscriber volume, which is a 12% percentage point increase over last quarter. Increasing growth is what will put Squares evaluation where we shareholders want it to be. The general revenue growth beat estimates slightly, at 36%. The subscriber revenue is extremely good for Square, as it has been shown to be a very reliable long term revenue stream method to employ.
The only concerning bit is a slight lowering of margins, as well as a non-exciting (while strong) guidance for Q1 2018. The guidance puts their revenue at around $2.87 billion, and $245 million adjusted EBITDA, which is very strong. The most worrying part there is the loss of margin expectations for the coming quarter. There might be a silver lining here, as the loss of margin comes a majority from a hefty increase in R&D investments, which was raised quarter to quarter from 17% growth y/y to 43% y/y. If you trust in CEO Jack Dorsey and other R&D executives, the investments might pay off in competitive product down the line.
Thoughts
All in all, the quarter was strong. Many other companies would relish to have such fantastic growth results. However, Square is expected to have so and while this was perfectly great, it’s no smoking gun for the business path to progress. That said, my model hints that it would make extremely good sense mathematically if they performed better revenue-wise than their guidance predicts, as their growth number would have to abruptly drop for the revenue to not beat $2.9 billion. They know more than I do, however this makes me believe that the risk of failure is lower than many bears would like to believe.
Evaluation
My current fair evaluation puts $SQ at $52, however, it takes very little additional growth and improvement of margin to put them as high as $66. It’s simply now known, and the stock evaluation could easily skyrocket if it would maintain growth in any business portion, before turning it’s operating costs into true profitability. I don’t have a set price target, as I plan to hold $SQ indefinitely. It is currently 7% of my portfolio, as I sold off the huge position I used to hold before it reached my price target ($50.16 estimated 3 months ago). It seems like I missed out on profit $SQ, however if I wanted that exposure I would exercise the use of options instead of holding such a vast, riskful large portfolio %.
Advice Anyone who is holding Square, don’t expect incredible growth this year in Square, without also not only expecting excellent business results, but excellent results compared to Squares already very strong results. I would buy SQ here, as the company is not overvalued in my eyes, but fairly so. However, I would only buy it to hold for at least 3-5 years, it will no longer be as valuable short term purchase which I do not advocate for in either way, no matter the equity.
Previous post: https://www.reddit.com/r/StockMarket/comments/7djzkb/sq_a_model_analysis_summary/
Submitted March 06, 2018 at 05:16PM by lykosen11 http://ift.tt/2oO5WiR
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