When Square (SQ) reports fourth-quarter earnings late Tuesday, management commentary on Bitcoin may matter to investors as much as its 2018 outlook.
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Mark Palmer, analyst at BTIG, says Square has been trading in sync with Bitcoin.
“The trajectory of Square shares appears to have been a muted version of Bitcoin’s wild ride during the past few weeks,” Palmer said in a recent note to clients. “While that connection seems to have worked to Square’s benefit during the latter portion of that ride given that Bitcoin has been rallying, it served as confirmation that Square’s stock has become tethered to the movements of a volatile cryptocurrency — a live-with-it, die-with-it relationship that we do not believe is conducive to the sustenance of a lofty multiple.”
Bitcoin on Monday was up 8.9% to $10,440.64 in afternoon trades. Square was up 3.8% to close at 46.55 on the stock market today.
Square is expected to swing to a 7-cent-a-share profit vs. a 4-cent loss a year earlier, with revenue rising 33% to $602 million. In 2018, Square is expected to earn 45 cents a share, with revenue of $2.84 billion, up roughly 29%.
Some analysts, meanwhile, are focused on earnings and Square’s 2018 outlook. The digital payments processor makes credit card readers that plug into mobile phones and tablets.
“We expect a strong Q4 beat, followed by a conservative, yet beatable guidance factoring in reinvestment,” said Josh Beck, a KeyBanc Capital Markets analyst in a report.
Daniel Perlin, analyst at RBC Capital, said he expects a “conservative fiscal 2018 guide.”
“The question remains as to the level of reinvestment required to support all the new product initiatives Square is bringing to the market, while at the same time expanding geographically,” he said in his note to clients.
Square has formed a cup-with-handle base with a 47.60 buy point. The stock is up 155% from a year ago but has weakened from all-time highs set in early November.