Square share price: what to expect in Q1 earnings

Square’s share price might be flat this year, but its customers are struggling during lockdown. How much will this affect Q1 results?

Square’s [SQ] share price is flat this year, trading at broadly the same level it did at the start of 2020, but this week’s Q1 earnings could be about to change that. Many of Square’s customers are small businesses that will have been shut during the lockdown. This is bound to have had a material effect on Square’s business. Throw in a string of analyst downgrades and Square could be looking at a sizeable dent in revenues.

What will this mean for Square’s share price? And what should traders expect in Q1 earnings?

Why should investors care?

Struggling customer base

Mark Palmer at investment bank BTIG expects Square to post a 61% drop in first-quarter revenue. Palmer reasons that the impact of coronavirus on medium and small businesses will have a big impact on Square’s earnings. These companies pay a fee to Square based on sales: the fewer sales, the less money Square gets.

Restaurants and bars that use Square to take payment have seen a complete collapse in business. Then there's the longer-term worry that even if the lockdown is lifted in the US, consumers will now prioritise saving over splurging.

According to Michelle Meyer, head of US economics research at Bank of America: “Following this COVID [19] shock, the tendency will be to build up savings and there will also be a change in how people spend and how people live.”

String of downgrades

Palmer isn't the only one sceptical about Square's prospects. April saw Raymond James, UBS and Compass Point all downgrade their rating for Square. UBS analyst Eric Wasserstrom downgraded his rating on the payment provider from Buy to Neutral. Like Palmer at BTIG, Wasserstrom is concerned that the outbreak is going to hurt in-store purchases.

"Whereas our prior thesis centred on our expectation that [Square’s] investments in 2020 would drive re-acceleration of revenue growth and margin expansion in 2021...we no longer have conviction in that view in the context of currently devolving consumer spending trends."

Wasserstrom has a $54 price target on the stock, which would see a 15.2% downside on the current share price.

Compass Point analyst Michael Del Grosso sees a "significant disconnect with reality" and Wall Street estimates. Del Grosso - who has a $50 share price target on the stock -points out that many US cities are still in lockdown. He thinks that Square will see a 46% decline in total payment volume in Q2 - way ahead of the 17% consensus estimate.

What are analysts expecting?

Wall Street expects Square to post earnings of $0.13 per share, up from $0.11 seen in the last quarter of 2019. Revenue is expected to come in at $620.34 million.

Among the analysts, Square has a 62.74p 12-month price target price target. Hitting this would see a 1.5% downside on the current share price. Of the 31 analysts tracking the stock on Yahoo Finance 17 rate it either a Strong Buy or a Buy. The rest rate it a Hold.