Square shares rise after Evercore ISI says bitcoin test is innovative, upgrades stock

Key Points
  • Evercore ISI upgrades Square to outperform, highlighting the company's bitcoin testing as a potential revenue source down the road.
  • Analyst Rayna Kumar also underscores Square's new technologies like Square Register, saying the new products should advance the company upmarket.
  • Shares of Square closed at an all-time high Thursday and are up more than 200 percent since January.
Sarah Friar, CFO, Square
Scott Mlyn | CNBC

Square's bitcoin testing adds to the company's innovative reputation and could spell earnings success down the road, according to one Wall Street analyst.

Evercore ISI upgraded shares of Square on Thursday, citing the company's new lineup of payment technology and rapid revenue growth.

"Following our meeting Wednesday with CFO Sarah Friar, we are upgrading Square to outperform," analyst Rayna Kumar wrote in a note to clients. "Square's introduction of bitcoin on Square Cash reflects its ability to innovate."

The analyst noted that while it may be a few years before Square sees any effect from the cryptocurrency on earnings, CEO Jack Dorsey's progressive outlook likely means good things for the payment company's bottom line.

"We believe Square could generate revenue growth of 40 percent and 35 percent in 2018 and 2019, respectively, similar to the 41 percent we estimate for 2017."

Square's stock jumped 5.4 percent Thursday after the company said it was testing support for bitcoin through its Cash payments app with a small number of customers. The stock was up more than 2 percent in early trading Friday.

Bitcoin was trading at $7,844.83 Friday morning after recovering from a sharp drop earlier this week. After news of Square's bitcoin testing broke on Wednesday, it bounced back from a 30 percent slide last weekend.

Shares of Square hit intraday and closing highs on Thursday, putting the payment processor up more than 200 percent this year.

"However, in the mid-term Square's early-stage, bitcoin pilot program remains immaterial to earnings," Kumar said.

While bitcoin reflects long-term ambitions, the analyst is also positive on the company's current ventures. In last week's impressive earnings report, Square launched Square Register, its first all-in-one point-of-sale hardware. The product offers more competitive pricing for larger volume merchants at 2.5 percent per transaction, below Square's usual pricing of 2.75 percent.

Square's gross payments topped Wall Street's expectations, posting volume of $17.4 billion, or 31 percent growth year over year.

"Products like Square Register and retail point-of-sale can attract larger customers, particularly restaurants, retail and services businesses who seek a full view of customer activity," said Kumar. "Square's new products with strong, omni-channel capabilities should advance its progression upmarket."

The analyst raised her price target to $51 from $25, representing 22 percent upside from Thursday's close.