Morningstar | Increasing Our FVE and Uncertainty Rating for Square
We recently increased our fair value estimate for no-moat Square to $44 per share from $23 and increased our uncertainty rating for the company to extreme from very high. Square’s mobile phone card reader enabled small businesses to accept electronic payments for the first time, and its success in spreading through word of mouth enabled the company to acquire billions of dollars in processing volume at relatively little cost. The company’s strategy is now to widen the range of services it provides to these businesses, essentially using its payment-processing business as a beachhead to expand into other types of financial services and business software. Square continues to achieve very strong growth, and the inherent scalability of its business model could create dramatic margin improvement going forward. However, at the same time, we are not convinced that Square has fully cemented itself as an essential player in the rapidly evolving payments processing industry, and the company has yet to achieve GAAP profitability. We see potentially both a high ceiling and low floor for Square in the long run.Square is a commerce ecosystem that combines software with hardware to enable sellers to turn mobile devices and computing devices into payment and point-of-sale solutions. With the company's offering, a seller can accept payments via magnetic stripe, Europay, MasterCard, and Visa, or Near Field Communication; or online via Square Invoices, Square Virtual Terminal, or the seller's website or app. Also, sellers can gain access to reporting and analytics, next-day settlements, digital receipts, payment dispute and chargeback management, security, and Payment Card Industry compliance. The company's Cash App enable individuals to send and receive money electronically to and from individuals and businesses.
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