Square (SQ): Reiterated Top Pick - Mizuho
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Mizuho Securities analyst, Neil Doshi, reiterated his Buy rating on shares of Square (NYSE: SQ) after the company crushed expectations and guided up. Strength continued from the core transaction business which showed a stable take rate and transaction margin. But the analyst believes new products and services should drive revenue in 2017 which should lead to material EBITDA margin expansion over the coming years.
Importantly, large vendor transaction volume continues to grow. In 3Q, large merchant GPV grew 55% vs. 61% last quarter, and accounted for 43% of GPV. What is remarkable is that take-rates were flat with 2Q at 2.93% and transaction costs as % of GPV modestly ticked up 20 bps to QoQ to 1.92%. With more scale in GPV, the consistent take rate and transaction costs should drive high margins over time. A 20 bps improvement in transaction costs or take rate would drop straight to EBITDA margin.
The analyst cited Square as his top SMID cap pick and reiterated a price target of $16.
Shares of Square closed at $11.07 yesterday.
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