Why Are Investors So Bullish On Square (SQ)?

Shares of Square SQ climbed higher on Tuesday as investors continue to love the mobile payment company’s stock. An analyst note, which spoke about the potential for a buyout from an online payment giant, might be helping fuel today’s positive movement.

In a recent note, a Loop Capital analyst suggested that PayPal PYPL should consider buying the company. This note has helped Square’s stock jump well above its average volume of 7.8 million to 12.6 million.

Square’s stock popped to close up 6.14%, which is just above its previous 52-week high. The San Francisco-based company is already up almost 80% in 2017.

"PayPal's strategic objectives over the next several years should be to maximize Venmo monetization opportunities, extend PayPal's reach in brick-and-mortar retailers, and stem transaction margin deterioration," Loop Capital analyst Joseph Vafi said in a report, according to Investor’s Business Daily.

"The acquisition of Square helps check the boxes. Such an acquisition also fits with PayPal's vision of transforming itself into a true, two-sided network. Timing-wise, such a deal makes more sense now that Square is pro-forma profitable… With millions of active merchants, Square's customer base makes for a tantalizing monetization opportunity for Venmo."

Loop Capital’s Vafi lays out a seemingly reasonable and viable case for the much larger and older PayPal to acquire Square. The idea of pairing Square’s merchant-facing, small and medium size business services with PayPal’s millennial-driven, person-to-person mobile payment platform could be a win for both parties (also read: 7 Fun Facts About PayPal (PYPL) As Stock Nears All-Time High).  

Room For Solo Growth

Still, Twitter TWTR CEO Jack Dorsey’s other company has room for growth beyond its point of sale services, even without the help of a merger or acquisition.

Square has expanded into more than a credit card processing company for mom and pop shops. The company now offers small business loans through Square Capital, which allows merchants the opportunity to pay loans back gradually through automatic payments via a portion of their point of sale transactions.

These loans could be particularly inciting to many small businesses because it removes the hassle of going through a bank. Square simply monitors a merchant and then lets them know through their online business portal if they are eligible for a loan. The gradual, percentage-based automatic payments are also fit with the times.

On top of business loans, Square invested in the food ordering market. In March, the company purchased food ordering startup OrderAhead, after it bought Caviar in 2014. Square is currently working with a select amount of restaurants and food trucks to allow customers to order ahead of time and skip the line.

Square is also succeeding without a large international presence. The mobile payment company officially entered just its fifth country, the U.K., in late March.

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