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Square stock: Rising competition, slowing demand hinders 2021 outlook

Square stock: Rising competition, slowing demand hinders 2021 outlook

Square’s (NASDAQ: SQ) stock price fell almost 11% in the last five trading sessions amid downgrades from several analysts.

What’s more, the drop in Square App downloads along with the redesigned Google Pay app has raised investors’ concerns over the sustainability of hyper-growth the payment technology company experienced throughout the pandemic year.  

Square stock performance. Finviz chart

Some investors also believe the stunning share price rally of 235% in 2020 has significantly increased its valuations, which could limit the upside potential in 2021.

Analyst’s downgrades hit Square stock  

Several market analysts slashed Square’s stock price ratings last week due to various factors. Baird analyst David Koning provided a Neutral rating, suggesting investors to remain patient as its shares already gained 235% this year.

Piper Sandler analyst Christopher Donat has also set neutral ratings amid rising competition and slowing App downloads. Donat says Square’s Cash App downloads pace is declining to 12% year over year compared to an 80% increase during the second quarter of 2020.

2021 could be a tough year

It’s quite hard for the fintech company to sustain the revenue, users, and earnings growth trends heading into 2021. The discovery of the coronavirus vaccine along with economic reopening could also soothe users’ focus towards online platforms.

Square has generated massive growth in 2020. Its September quarter revenue grew 136% to $3.03 billion, with expectations for full-year revenue growth to stand around 37% from the prior year.

Meanwhile, the chief financial officer Amrita Ahuja says Square is in its early growth stage with strong growth prospects ahead. He claims that Square has only reached 3% of its two key markets merchants.

On the other hand, the chief executive officer Jack Dorsey seeks to diversify Square’s revenue base by acquiring small companies. For instance, he is showing interest in the music streaming service Tidal.

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