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The financial world has been evolving with the technological revolution finding its way into every crevice of the economy. The world is digitalizing, and the paper cash economy we once knew is becoming antiquated. Millennials and Gen Z’s don’t carry cash anymore with the use of cards and smartphones becoming the preferred payment methods. Square has been able to capitalize on the evolving financial world with its innovative payment process technology.
SQ has driven substantial returns since its IPO in late 2015 to its all-time high last September, illustrating 670% gains in that time frame. Since its high in 2018, SQ has stumbled a bit.
Square’s 2nd quarter earnings release disappointed the market, and the stock has since broken down over 24%. The firm beat both top and bottom-line estimates but dropped its forward-looking guidance. For a firm with high double-digit growth priced in and rich multiples, a slide in guidance incites anxiety for shareholders.
The drop in market sentiment may have created a springboard for SQ to rally off of in its Q3 earnings, which are expected next Wednesday, November 6th.
The Business
A survey conducted by TSYS, a payment processing service, found that only 14% of the 1,222 people surveyed preferred to use cash while the other 86% preferred either a debit or credit card. Square is a driving force in the fintech revolution pushing paper money out and digital finance in. The firm's primary product offering is payment processing support for small businesses, which would previously not have had the capability.
Most of you have likely used Square at your local main street businesses, recognized for its sleek hardware design being either a small square plug-in on a smartphone or a glossy white chip insert block. Square's hardware, combined with its cloud-based software allows any business to accept digital payments.
The Opportunity
Square has adopted a peer-to-peer (P2P) payment app called Cash App. This application is competing in this overly competitive market with Venmo, Apple Cash, and Zelle, which was started by some of the largest US banks.
Square's Cash App will now allow users to trade stocks with zero added commissions or fees. A unique characteristic to Cash App's new trading feature is its ability to allow individuals to buy fractions of shares of expensive stocks like Amazon or Berkshire Hathaway (class-A shares), which would have otherwise been unattainable to small investors.
Fractional trading is going to revolutionize the world of trading, and Square is an early adopter. This should expand the usage of Cash App and could provide them with expanded market share. The competition in P2P platforms is fierce, but this new feature should give Square a niche competitive edge.
Square has been building out its subscription-based business model that has been yielding the company the substantial margins and exponentially growing its topline with reliable revenue.
The firm's purchase of Weebly ($365 million in cash and stock mix) last year has broadened Square's reoccurring revenue stream. Weebly is a tech company that gives businesses the necessary tools to build out an e-commerce platform and helps the business manage it. Weebly and Square have an overlapping customer base, which should provide significant synergies for the combined company.
SQ has been building out its business fast with high double-digit topline growth and its ability to be cash-flow positive for the past 2 years. SQ has a proven business model, and its business is only expected to expand. This year analysts are projecting 35% sales growth, followed by 25% the following year.
Square is now opening its business to CBD merchants, creating an enormous market opportunity for this small business propelling enterprise. Once marijuana is federally legalized, Square will be well-positioned to take on the enormous payment demands that these merchants require. I think that current estimates are not taking the potential of the cannabis market into account. This new wave of retail could drive enormous growth for Square.
Analysts are increasingly optimistic about Square’s future profitability propelling these shares into a Zacks Rank #1 (Strong Buy).
Take Away
Square is becoming a well-diversified fintech firm that has its hand in a lot of different pockets. The stock's recent fall has created a buying opportunity for this revolutionary financial stock. SQ is positioned at a discount following a disappointing Q2, but with lowered expectations, this stock has the chance to see a big bounce following its Q3 report Wednesday, November 6th.
The gaming industry is rapidly evolving, with next-generation gaming being driven by augmented and virtual reality (AR & VR) as well as mobile devices. GameStop was a staple in the gaming community for years, with new video game debuts inciting hordes of dedicated gamers to line up outside, ensuring they secured a copy before it was sold out.
The video game market continues to soar, but GameStop has been unable to adapt to the rapidly changing landscape. People no longer have any need to go to the store to buy their games. Everything is now done online through a marketplace portal on your console, PC, or mobile device. GameStop is a brick-and-mortar retailer that is just another victim of the retail apocalypse.
Recent Performance
GME hit its all-time high at the end of 2007 of $63.30 then took a nosedive during the great recession, which is expected for any consumer-discretionary retailer, but this stock never fully recovered. The shares hit another high of $56.50 at the end of 2013, but have since broken down, trading at a mere fraction of that value today.
This year alone, GME has lost almost 60% of its value, and still, I see no reasonable price at which I would purchase these shares. GameStop debt is in junk bond territory, and I only see this trend continuing as the companies antiquated business model eventual fizzles into bankruptcy.
The firm is seeing a falling top and bottom-line as GameStop turns unprofitable. Analysts are anticipating a continued drop in sales and income for the projected years to come.
The only segment in GameStop’s Q2 report that saw growth was collectibles, which now makes up 13% of its topline. The company is slowly turning into an antique shop.
GameStop has closed over 600 stores since the end of 2014 (10% of total store count), and more are closing ever quarter.
Analyst continue to drop future profitability estimates pushing this stock into a Zacks Rank #5 (Strong Sell).
Take Away
This is one of those stocks where there is no price I would buy at, but I would also not short it. GameStop could be bought out and split up by a savvy acquirer, which would boost the stock price, but I am not getting my hopes up.
If this company doesn’t make significant systemic changes in its current business model, then bankruptcy seems likely. GameStop is following the same behind the curve path as Blockbuster. I would stay away from these toxic shares.
Additional content:
Uber (UBER - Free Report) Earnings Monday: Can It Curb Investor Concern?
2019 has taken rideshare shareholders on a trip that they wish they never made. Uber and Lyft have lost investors roughly $30 billion since they went public earlier this year. These ride-hailing apps are now under the gun again as Q3 earnings ensue. Lyft beat on both top and bottom-line estimates, but still got battered down in by the markets following its earnings.
Uber, who is preparing to release its Q3 Monday, November 4th, slid over 6% yesterday as investors' appetite for risky shares wanes. Anxiety is spreading across the market, stemming from companies reporting substantial losses, and as we near the end of an economic cycle. With every dip in the market, a larger drop is seen from the ridesharing stocks.
Monday will mark Uber's 3rd earnings report as a public company. The first two demonstrated very different results with beats in Q1 and big misses in Q2 that led to the sizable share price break down that UBER has been riding. Analysts and investors are still attempting to realize the intrinsic value of this stock, with every earnings report uncovering more of the truth.
For Uber's Monday report, Zacks Consensus estimates are displaying an EPS of -$0.82 on sales of $3.75 billion, which would represent 40% year-over-year topline growth. The company seems to be losing an increasing amount of money every quarter, seemingly unable to attain economies of scale.
The Ridesharing Space
This space hasn't seen profits since it was incepted 10 years ago, but none the less investors flocked around a good idea with no sense of how or when profits would be realized. This is the first year that ridesharing has seen the light of day in the public markets, and these stocks have not fared well.
UBER is down over 24%, and LYFT has dropped more than 45% since each of these firms went public. Both are trading at a discount to their last private funding round, demonstrating an issue of sloppy due diligence in the private markets.
Venture capitalist (VC), the ostensible captains of the financial world, have been running amuck in recent years, driving up the valuation of companies that's value is seemingly only a fraction of what these "financial gurus" paid for their stake.
WeWork is a prime example, with a massive misevaluation in the private markets the company was forced to suspend its IPO and completely restructure its business model. Its valuation was reduced to a small fraction of its last funding round, losing billions for VC firms around the world.
WeWork's most significant private investor was Softbank's Vision Fund, a Japanese VC fund that is heavily invested in tech. Softbank has had to write down a substantial amount of its investments, and its investment strategy is now under questioning. Softbank is Uber's largest investor, and its lack of due-diligence on other investments leads me to believe that UBER may also be misvalued.
Uber and Lyft are seemingly losing money on every ride that is taken, as each firm attempts to gain market share from the other by cutting pricing. They are also forced to compete on the cost of sales associated with the drivers.
In Chicago, both drivers and riders look at all ridesharing opportunities to see which will be most advantageous for them. To retain drivers, the firms have to compete on costs. To keep customers, the companies have to compete on price.
This may be a race to the end of each firm's capital, where only the largest firm will survive. Consolidation or collusion could also bring these companies to profitability sooner than later. As it stands, both firms will be losing money for an inconclusive number of years.
Take Away
Uber's earnings on Monday will uncover a little more of the companies operational narrative. Every earnings release takes investors and analysts one set step closer to the real value of the stock. Expectations have been hampered for Uber following a disappointing Q2 report. These low expectations, combined with the share price's continued slide, could be lining UBER up for a pop.
Lyft's positive earnings are a good sign for the space, but the market is still not convinced about ridesharing yet.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.5% per year. So be sure to give these hand-picked 7 your immediate attention.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Square, GameStop, Uber and Lyft highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – November 4, 2019 – Zacks Equity Research Shares of Square (SQ - Free Report) as the Bull of the Day, GameStop (GME - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Uber (UBER - Free Report) and Lyft (LYFT - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
The financial world has been evolving with the technological revolution finding its way into every crevice of the economy. The world is digitalizing, and the paper cash economy we once knew is becoming antiquated. Millennials and Gen Z’s don’t carry cash anymore with the use of cards and smartphones becoming the preferred payment methods. Square has been able to capitalize on the evolving financial world with its innovative payment process technology.
SQ has driven substantial returns since its IPO in late 2015 to its all-time high last September, illustrating 670% gains in that time frame. Since its high in 2018, SQ has stumbled a bit.
Square’s 2nd quarter earnings release disappointed the market, and the stock has since broken down over 24%. The firm beat both top and bottom-line estimates but dropped its forward-looking guidance. For a firm with high double-digit growth priced in and rich multiples, a slide in guidance incites anxiety for shareholders.
The drop in market sentiment may have created a springboard for SQ to rally off of in its Q3 earnings, which are expected next Wednesday, November 6th.
The Business
A survey conducted by TSYS, a payment processing service, found that only 14% of the 1,222 people surveyed preferred to use cash while the other 86% preferred either a debit or credit card. Square is a driving force in the fintech revolution pushing paper money out and digital finance in. The firm's primary product offering is payment processing support for small businesses, which would previously not have had the capability.
Most of you have likely used Square at your local main street businesses, recognized for its sleek hardware design being either a small square plug-in on a smartphone or a glossy white chip insert block. Square's hardware, combined with its cloud-based software allows any business to accept digital payments.
The Opportunity
Square has adopted a peer-to-peer (P2P) payment app called Cash App. This application is competing in this overly competitive market with Venmo, Apple Cash, and Zelle, which was started by some of the largest US banks.
Square's Cash App will now allow users to trade stocks with zero added commissions or fees. A unique characteristic to Cash App's new trading feature is its ability to allow individuals to buy fractions of shares of expensive stocks like Amazon or Berkshire Hathaway (class-A shares), which would have otherwise been unattainable to small investors.
Fractional trading is going to revolutionize the world of trading, and Square is an early adopter. This should expand the usage of Cash App and could provide them with expanded market share. The competition in P2P platforms is fierce, but this new feature should give Square a niche competitive edge.
Square has been building out its subscription-based business model that has been yielding the company the substantial margins and exponentially growing its topline with reliable revenue.
The firm's purchase of Weebly ($365 million in cash and stock mix) last year has broadened Square's reoccurring revenue stream. Weebly is a tech company that gives businesses the necessary tools to build out an e-commerce platform and helps the business manage it. Weebly and Square have an overlapping customer base, which should provide significant synergies for the combined company.
SQ has been building out its business fast with high double-digit topline growth and its ability to be cash-flow positive for the past 2 years. SQ has a proven business model, and its business is only expected to expand. This year analysts are projecting 35% sales growth, followed by 25% the following year.
Square is now opening its business to CBD merchants, creating an enormous market opportunity for this small business propelling enterprise. Once marijuana is federally legalized, Square will be well-positioned to take on the enormous payment demands that these merchants require. I think that current estimates are not taking the potential of the cannabis market into account. This new wave of retail could drive enormous growth for Square.
Analysts are increasingly optimistic about Square’s future profitability propelling these shares into a Zacks Rank #1 (Strong Buy).
Take Away
Square is becoming a well-diversified fintech firm that has its hand in a lot of different pockets. The stock's recent fall has created a buying opportunity for this revolutionary financial stock. SQ is positioned at a discount following a disappointing Q2, but with lowered expectations, this stock has the chance to see a big bounce following its Q3 report Wednesday, November 6th.
Bear of the Day:
The gaming industry is rapidly evolving, with next-generation gaming being driven by augmented and virtual reality (AR & VR) as well as mobile devices. GameStop was a staple in the gaming community for years, with new video game debuts inciting hordes of dedicated gamers to line up outside, ensuring they secured a copy before it was sold out.
The video game market continues to soar, but GameStop has been unable to adapt to the rapidly changing landscape. People no longer have any need to go to the store to buy their games. Everything is now done online through a marketplace portal on your console, PC, or mobile device. GameStop is a brick-and-mortar retailer that is just another victim of the retail apocalypse.
Recent Performance
GME hit its all-time high at the end of 2007 of $63.30 then took a nosedive during the great recession, which is expected for any consumer-discretionary retailer, but this stock never fully recovered. The shares hit another high of $56.50 at the end of 2013, but have since broken down, trading at a mere fraction of that value today.
This year alone, GME has lost almost 60% of its value, and still, I see no reasonable price at which I would purchase these shares. GameStop debt is in junk bond territory, and I only see this trend continuing as the companies antiquated business model eventual fizzles into bankruptcy.
The firm is seeing a falling top and bottom-line as GameStop turns unprofitable. Analysts are anticipating a continued drop in sales and income for the projected years to come.
The only segment in GameStop’s Q2 report that saw growth was collectibles, which now makes up 13% of its topline. The company is slowly turning into an antique shop.
GameStop has closed over 600 stores since the end of 2014 (10% of total store count), and more are closing ever quarter.
Analyst continue to drop future profitability estimates pushing this stock into a Zacks Rank #5 (Strong Sell).
Take Away
This is one of those stocks where there is no price I would buy at, but I would also not short it. GameStop could be bought out and split up by a savvy acquirer, which would boost the stock price, but I am not getting my hopes up.
If this company doesn’t make significant systemic changes in its current business model, then bankruptcy seems likely. GameStop is following the same behind the curve path as Blockbuster. I would stay away from these toxic shares.
Additional content:
Uber (UBER - Free Report) Earnings Monday: Can It Curb Investor Concern?
2019 has taken rideshare shareholders on a trip that they wish they never made. Uber and Lyft have lost investors roughly $30 billion since they went public earlier this year. These ride-hailing apps are now under the gun again as Q3 earnings ensue. Lyft beat on both top and bottom-line estimates, but still got battered down in by the markets following its earnings.
Uber, who is preparing to release its Q3 Monday, November 4th, slid over 6% yesterday as investors' appetite for risky shares wanes. Anxiety is spreading across the market, stemming from companies reporting substantial losses, and as we near the end of an economic cycle. With every dip in the market, a larger drop is seen from the ridesharing stocks.
Monday will mark Uber's 3rd earnings report as a public company. The first two demonstrated very different results with beats in Q1 and big misses in Q2 that led to the sizable share price break down that UBER has been riding. Analysts and investors are still attempting to realize the intrinsic value of this stock, with every earnings report uncovering more of the truth.
For Uber's Monday report, Zacks Consensus estimates are displaying an EPS of -$0.82 on sales of $3.75 billion, which would represent 40% year-over-year topline growth. The company seems to be losing an increasing amount of money every quarter, seemingly unable to attain economies of scale.
The Ridesharing Space
This space hasn't seen profits since it was incepted 10 years ago, but none the less investors flocked around a good idea with no sense of how or when profits would be realized. This is the first year that ridesharing has seen the light of day in the public markets, and these stocks have not fared well.
UBER is down over 24%, and LYFT has dropped more than 45% since each of these firms went public. Both are trading at a discount to their last private funding round, demonstrating an issue of sloppy due diligence in the private markets.
Venture capitalist (VC), the ostensible captains of the financial world, have been running amuck in recent years, driving up the valuation of companies that's value is seemingly only a fraction of what these "financial gurus" paid for their stake.
WeWork is a prime example, with a massive misevaluation in the private markets the company was forced to suspend its IPO and completely restructure its business model. Its valuation was reduced to a small fraction of its last funding round, losing billions for VC firms around the world.
WeWork's most significant private investor was Softbank's Vision Fund, a Japanese VC fund that is heavily invested in tech. Softbank has had to write down a substantial amount of its investments, and its investment strategy is now under questioning. Softbank is Uber's largest investor, and its lack of due-diligence on other investments leads me to believe that UBER may also be misvalued.
Uber and Lyft are seemingly losing money on every ride that is taken, as each firm attempts to gain market share from the other by cutting pricing. They are also forced to compete on the cost of sales associated with the drivers.
In Chicago, both drivers and riders look at all ridesharing opportunities to see which will be most advantageous for them. To retain drivers, the firms have to compete on costs. To keep customers, the companies have to compete on price.
This may be a race to the end of each firm's capital, where only the largest firm will survive. Consolidation or collusion could also bring these companies to profitability sooner than later. As it stands, both firms will be losing money for an inconclusive number of years.
Take Away
Uber's earnings on Monday will uncover a little more of the companies operational narrative. Every earnings release takes investors and analysts one set step closer to the real value of the stock. Expectations have been hampered for Uber following a disappointing Q2 report. These low expectations, combined with the share price's continued slide, could be lining UBER up for a pop.
Lyft's positive earnings are a good sign for the space, but the market is still not convinced about ridesharing yet.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.5% per year. So be sure to give these hand-picked 7 your immediate attention.
See them now >>
Media Contact
Zacks Investment Research
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.