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What’s Square’s Growth Potential?

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Jun. 22 2017, Updated 7:37 a.m. ET

Square claims less than 3.0% of the market

At its investor meeting last month, Square (SQ) portrayed itself as a company in the early stages of a long-term growth cycle. One thing that emerged from the investor meeting is that Square views its currently tiny share of the US (SPY) payments market as a position of strength rather than weakness.

As analyst Scott Devitt of Stifel pointed out, Square claims that its share of the US payments market is less than 3.0%, which shows it still has a long growth runway ahead. The US payments market is a $26.0 billion revenue opportunity. Square is battling PayPal (PYPL) and a host of other rivals for control of this market.

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A $60 billion addressable market

But payment is only one of Square’s operations. The company also has operating footprints in e-commerce, software, food delivery, and small business loans. Thus, Square estimates that its total addressable market is worth more than $60.0 billion.

In the business of supplying small loans to merchants, Square competes with PayPal, Amazon (AMZN), and LendingClub (LC). The credit operation could be a potential pillar of Square’s business given the strong demand for alternative credit. In the food delivery market, Square competes with Yelp (YELP).

Square projects 25% long-term growth

Square forecasts that its revenue will grow at a rate of 20.0%–25.0% over the long term, which will likely be supported by the company’s international expansion. Square’s revenue rose 21.7% to $461.6 million in 1Q17 as shown in the above chart.

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