24 February 2021

Square Shares Slide Despite Strong Q4 Results

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News shaping
the markets today

     

What’s happening: Shares of Square fell in after-hours trading on Tuesday, despite the payment services provider exceeding estimates for the fourth quarter.

What happened: In addition to reporting upbeat quarterly earnings, Square disclosed a $170 million investment in the world’s largest cryptocurrency, Bitcoin.

However, the company’s shares slid in extended trading on Tuesday, with management’s guidance for the current quarter disappointing traders.

How were the results: The San Francisco, California-based company reported strong growth in revenues for the fourth quarter, with both top-and bottom-line exceeding market views.

  • Revenue grew by a whopping 141% to $3.16 billion, surpassing the consensus estimate of $3.09 billion.
  • Gross profits came in at $804 million, higher than expert projections of $798 million.
  • Adjusted earnings were reported at 32 cents per share, which also exceeded market expectations of 24 cents per share.

Why it matters: Square said it had purchased approximately 3,318 bitcoins for a sum of $170 million, raising further interest in the world’s largest cryptocurrency, which has been gaining acceptance from large investors, including Tesla boss Elon Musk.

Square’s CEO Jack Dorsey, who also heads Twitter, is a long-time fan of Bitcoin. Square had purchased around 4,709 coins for a total price of $50 million in October. Since then, the price of Bitcoin has surged to new highs, propelled partly by Elon Musk’s Tesla investing $1.5 billion in the cryptocurrency.

Management said in a statement that Square considers Bitcoin as “an instrument of economic empowerment, providing a way for individuals to participate in a global monetary system and secure their own financial future.” They added that the company will continue to “assess its aggregate investment in bitcoin relative to its other investments on an ongoing basis.”

The Bitcoin rally is driving revenue for Square’s Cash App, where users can buy and sell the cryptocurrency. The app recorded $41 million in gross profits for the fourth quarter. Cash App recorded over 36 million MAUs (monthly active users), representing 50% year-on-year growth.

Management did not seem so optimistic about the initial trends in the current quarter. Square said January’s gross profits were up 15% year-on-year but were only a modest improvement from the fourth quarter’s performance.

How shares responded: The company’s shares plummeted 5.7% to $242.06 in extended trading on Tuesday, following a 4.3% decline during regular trading hours. Despite this downturn, the stock has added more than 23% over the past three months.

What to watch: Markets will look out for updates on the company’s performance in the current quarter. Investors will also keep an eye on Bitcoin prices, given Square’s massive investment in the cryptocurrency.

The Markets Today

     

Crude oil will be in focus today, ahead of the EIA’s (Energy Information Administration) report on crude inventories.

Context: Oil prices ended mixed on Tuesday, with traders monitoring the pace of recovery in energy production in Texas following winter storms last week.

Details: A strong winter storm swept across the southern part of the US, resulting in the closure a third of US refineries.

Several analysts raised their forecasts for crude. Goldman Sachs projected Brent crude to reach $75 per barrel by yearend, while ING raised its 2021 estimate for the global benchmark to $65 per barrel, from its earlier outlook of $60 per barrel.

Trading remained cautious ahead of the OPEC+ (Organization of the Petroleum Exporting Countries and their allies) group’s meetings next week to announce their decision on oil output levels for the coming months.

Crude markets closed mixed on Tuesday, with the US benchmark settling slightly lower and the global benchmark notching a new 13-month high.

WTI (West Texas Intermediate) crude for April declined 3 cents to close at $61.67 per barrel on the NYMEX (New York Mercantile Exchange), while April Brent crude added 0.2% to $65.37 per barrel on ICE Futures Europe, recording the strongest close since January 2020. May Brent crude gained 0.2% to reach $64.48 a barrel on Tuesday.

What to watch: Investors await the EIA’s data on crude oil stockpiles. US crude inventories are expected to decline by 5.19 million barrels for the latest week, following a 7.258 million drop in the week ended February 12, 2021. Analysts projected a decline in gasoline inventories of 3.06 million barrels, with distillate inventories also likely to have contracted by 3.75 million barrels.

Rising covid-19 cases remain a top concern for markets, with total global infections exceeding 112 million.

Other Markets: European trading indices closed mixed on Tuesday, with the FTSE 100 and French 40 up by 0.21% each, and the Stoxx 600 and German DAX 30 index down by 0.42% and 0.61%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s GDP growth rate, France’s industry climate indicator and business climate indicator, Brazil’s FGV consumer confidence index, current account, foreign direct investment and IPCA mid-month CPI, Mexico’s retail sales and mid-month inflation rate, Argentina’s economic activity index as well as the US MBA mortgage applications, new home sales and Fed Chair Powell’s testimony.

 

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