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SQ shareholders could be in for a rude awakening

Earlier this week, PayPal (PYPL) reported earnings that surprised investors, sending shares +13% higher. 

Competitor Block (SQ) shares have risen by over 20% in the past week, and SQ will be reporting earnings tonight after the closing bell.

Here are our three main points of focus heading into the SQ earnings report: 

SQ’s Cash App is losing ground 

In its earnings call, PayPal noted strength in its peer-to-peer payment platform, Venmo, which is visible in LikeFolio data:
As you can see, Venmo mentions grew +13% YoY.

In contrast, Block’s Cash App buzz is waning. 

Crypto is causing pain for SQ 

Interestingly, not once in PayPal’s earnings call did they mention cryptocurrency.

Block, on the other hand, will have no choice… the company has much higher exposure to cryptocurrency trends than PayPal. Last quarter, crypto accounted for over 43% of Block’s total net revenue.

Despite this, PayPal actually generates more consumer buzz around its crypto offerings than Block does:
What really bothers me about this chart isn’t just that PayPal is getting more buzz in crypto than Block… it’s that the lead has increased over the past 4-5 months (as seen in the recent decline of Block crypto mentions as PayPal holds steady).

This tells me Block’s bet on crypto may not be working out as well as the company had hoped.

Both PYPL and SQ are riding a growing tailwind in Digital Wallets 

While it’s clear to us that PayPal is outperforming Block with consumers at the moment, we think both are in a fantastic long-term position.

Consumers are increasingly moving to “digital wallet” technologies, a trend we don’t see slowing down anytime soon.

Bottom line: We are concerned that Block may be losing ground to PayPal, and that PYPL’s excellent earnings results may have given SQ shareholders a false sense of confidence heading into tonight’s report.

If we get the pullback in SQ that we’re anticipating, it could be an excellent opportunity for longer-term investors looking to get a piece of the coming digital wallet bonanza.

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LikeFolio analyzes social media data to accurately predict shifts in consumer behavior. We sell data and insights to professional investors, corporate research teams, and software providers.

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