Investors Pull Back from Jack Dorsey’s Square—For Now

Jack Dorsey’s Square Inc. fell 14% on Friday, but it may just be a course correction for the highflying, financial-technology firm.

The drop came after the payments company reported disappointing guidance on earnings this year. Best known for its plastic dongle that attaches to smartphones to allow credit-card processing, Square has still enjoyed a stellar run. Its shares are up 24% this year, even with Friday’s drop.

But its latest financials, released Thursday after markets closed, dented its success story. Square projected that its net loss for 2019 would be 6 cents to 10 cents a share, after earlier putting it at 5 cents to 9 cents a share. The company also said it was selling its Caviar food-delivery platform for $410 million.

“There were some cracks that weren’t there before,” said Bob Napoli, a partner at William Blair & Co. He noted that Square had reported rising losses on transactions, a sign it may be taking on less creditworthy clients as its user base expands.

Still, some analysts expect Square to return to form as other businesses gain traction, such as Cash App, a digital money-transfer and bitcoin-buying service with 15 million customers.

“There are a number of revenue drivers they have, such as Cash App, that are going to be spooling into revenues going into 2020,” said Darrin Peller, a managing director at Wolfe Research.

He predicted Square stock wouldn’t move much in the coming months but would resume its ascent later in the year. A Square spokeswoman declined to comment.

Other payment companies also fell on Friday amid a broad market selloff.

PayPal Holdings
Inc.

tumbled 3.3%, while credit-card giants Visa Inc. and

Mastercard
Inc.

dropped 1% and 1.7%, respectively.

Still, the payments sector has been rallying, as such companies make deeper inroads into business transactions and capitalize on innovations such as “contactless” credit cards. PayPal, Visa and Mastercard are up 27%, 34% and 43% for the year, handily beating the S&P 500, which has gained 17%.

Mr. Napoli, of William Blair, said Visa and Mastercard benefit from a steady business that is hard for competitors to break into. So while they are not as flashy as Square, the credit-card giants may offer investors the more dependable way to cash in.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

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