Jack Dorsey led Square shares leaped high on Monday as the Twitter backed payments group made two important announcements: its strong second quarter results and its $29 billion takeover of Afterpay, an Australian based buy now pay later company. This will give the company a competitive edge as it chases behind PayPal.
On Sunday, Square said that it would pay A$126.21 for each share of Afterpay, which is nearly $92.65 per share. The all-stock deal will put the value of the company at $29 billion. Both the companies said that they expect the deal to close in 2022. Square also expects to increase its profits in the first year after the merger.
Square pre-announced its second quarter results posting higher than expected earnings. The Q2 earnings were 40 cents per share. This is not only up from a 3-cent loss year over year, but is also ahead of the Street consensus prediction of 30 cents. The payments platform also said that the group revenues leapt higher by 143 percent when compared with last year and stood at $4.68 billion.
Both Square and Afterpay saw a rise in their stock value in early trading Monday. Square shares rose by 8.2 percent and were at $267.20 per share. At the end of the Australian trading session, Afterpay shares rose by 18.77 percent and were at A$114.80 per share.
Square CEO Jack Dorsey said that both the companies had a shared purpose and both the businesses helped make the financial system “more fair, accessible and inclusive.” He also said they could make a better connection with their Cash App and Seller ecosystems thereby delivering more compelling products that would serve both merchants and consumers. These products and services would also put “power back” in the hands of merchants and consumers.
Analysts believe that the buy over build approach by Square has made it an earlier than expected challenger to rival PayPal. This merger will also close the gap between the market leader PayPal and the young upstart Square/Afterpay and increase competition which might ultimately benefit the consumer.