Article from DJNews SummaryDJ Square Keeps Its Equal Sides With...

Article from DJ

News SummaryDJ Square Keeps Its Equal Sides With Afterpay Deal -- Heard on the StreetAPT$114.80$0.00 (0.0%)$114.59$115.0003 Aug 2021 02:18:231 ViewBy Telis DemosWith a deal to acquire Afterpay, Square won't have to start calling itself Rectangle.Given Square's ambitions across banking and payments, one could have argued for any number of directions in a deal. It chose to do a $29 billion all-stock acquisition of Afterpay, a global leader in providing short installment payment options to shoppers, known as "buy now, pay later." Square certainly has the equity currency to do a deal like this, with its shares trading at over 50 times book value. The question for investors is whether this was the best use of its bounty.Investors have long been playing matchmaker for Square, with ideas like buying a "neobank" offering checking accounts to consumers, a major cryptocurrency wallet or a digital brokerage. With their regulatory hurdles, those businesses have deep competitive moats.But this is perhaps a somewhat rarer type of acquisition that makes sense for both sides of Square's business: For the merchant side, being able to package a "buy now, pay later" option into its existing seller tools and expanding more into large global retailers. For the consumer side, integrating more credit and shopping into Square's Cash App. Many other mooted acquisitions would have tilted heavily toward one side.One thing that had concerned investors about Afterpay and its peers was the ability of broader payments and consumer-finance players to rapidly jump into the market. Notably, PayPal Holdings' launch of a Pay in 4 installment-payment option late last year is already doing well over $1 billion in quarterly volume.Square is adding Afterpay's roughly 100,000 merchants and 16 million consumers globally. The key is that Afterpay doesn't just do payments for merchants -- it sends consumers their way through its directory and app, producing about 1 million leads a day, according to Afterpay. What it needed was a way to hang on to consumers as competition intensified. So as Square transitions Afterpay users into Cash App users -- putting peer-to-peer payments, accounts, debit cards, crypto, trading, streaming music and Boost rewards next to where they manage their installment payments -- it can make a stronger case to merchants that the Afterpay button brings customers who are loyal to it.A big part of investors' thesis on Square is also that its Cash App and seller business eventually would be strongly linked and drive even faster growth. Buying Afterpay helps that along. Square said that the deal would be accretive to its gross-profit growth in the first year after closing, excluding synergies. Growth is what matters to many Square investors. Autonomous analyst Craig Maurer figures that with what he says is a relatively conservative synergy of a 20% increase in Afterpay revenue as part of the Square ecosystem, the combination could be 4% accretive to gross profit per share in 2022.Square isn't alone in this "super app" ambition, which seems to be the sine qua non of fintech. PayPal is the furthest down that road, but many investors' bull case for the likes of Robinhood Markets, SoFi Technologies, Coinbase Global and others also is based in part on the opportunity to be a top money app. So there is value in moving aggressively to lock up users and attention as rapidly as possible.Investors can debate whether Square made the best use of its highflying stock with this acquisition. The market already has voted approvingly, driving up shares more than 10% on Monday. Now Square has to make sure it can stay in shape and deliver the big results the market is expecting.(END) Dow Jones NewswiresAugust 02, 2021 12:18 ET (16:18 GMT)