All about Square, the US company acquiring Afterpay (ASX:APT) shares

We take a deep dive into the company looking to buy Australia’s most successful buy now, pay later provider.

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The ASX is off with a bang this week after Afterpay Ltd (ASX: APT) announced it was to be acquired by Square Inc (NYSE: SQ).

As part of the takeover offer, Afterpay investors will see their shares in the buy now, pay later (BNPL) giant transformed into Square stock at a ratio of 0.375 Square Class A common stock for each Afterpay share.

Square is a US-based payment processing provider. It has performed exceptionally well on the New York Stock Exchange in recent years.

The news broke this morning and the Afterpay share price is rocketing, up 23.18% on its previous close. Shares in the BNPL giant are trading at $119 apiece at the time of writing.

Afterpay’s board has already recommended the offer to its shareholders.

As the owners of Afterpay shares may soon become Square shareholders, let’s take a deep dive into Square and its time on the NYSE.

What is Square?

Afterpay investors may soon see their shares transformed into Square stock. But what is Square and what does it do?

Square’s business model comes down to its 2 products.

The first is Square’s point-of-sale (POS) offering. It allows businesses to process card payments quickly and efficiently with set fees.

In addition to its POS system, Square offers a range of Square Readers. Square Readers are POS hardware that can be used through a smartphone or tablet app, allowing businesses to use their POS systems anywhere they have a mobile signal.

Square’s second product is Cash App. Cash App lets users transfer money to others, purchase goods, invest in stocks, and even buy Bitcoin.

Cash App also has a Boost feature that gives customers discounts, cashback, or even Bitcoin rewards when making purchases. Our colleagues over at The Motley Fool US recently reported on Square’s Boost feature’s profit model.

Square’s performance on the NYSE

Market watchers likely know about the outstanding performance of Afterpay shares and might worry this acquisition could stall their investment’s growth.

Fortunately, Square is also a major stock market mover.

Square’s initial public offering (IPO) happened way back in late 2015.

Under its prospectus’ offer, Square shares went for US$9.00 ($12.26 at today’s exchange rate). Now, shares in Square are swapping hands for US$247.26 ($336.73).

That leaves Square shares a whopping 2,647.33% higher than they were just under 6 years ago.

On the other hand, the Afterpay share price has gained 3,176.61% since it merged with formerly ASX-listed Touchcorp back in July 2017 to create the Afterpay we know and love.

The Motley Fool US recently reported that analysts expect Square’s sales growth to increase by 110.6% over the US 2021 financial year (which ends 30 September). However, it is expected to slow in the coming US financial year to a growth rate of 14.1%.

Additionally, Square has been performing better than Afterpay on their respective markets in recent times.

The Square share price has gained 11% year to date, and 83% over the last 12 months.

Afterpay share price snapshot

Afterpay shares haven’t been doing nearly as well lately.

They have gained 0.8% since the start of 2021. However, they are currently trading 69% higher than they were this time last year.

Should you invest $1,000 in Afterpay right now?

Before you consider Afterpay, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Afterpay wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Bitcoin, and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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