Square Enhances Cash App Platform With Credit Karma Tax Acquisition

Payment processing company Square has entered into an agreement with Credit Karma to acquire its tax business, Credit Karma Tax, for $50 million. Credit Karma Tax provides a free, do-it-yourself tax filing service for consumers.

Credit Karma Tax will be a part of Square’s (SQ) mobile payment platform, Cash App. Square disclosed that Credit Karma Tax helped over two million filers process their tax returns in the latest filing season. The acquisition is expected to enhance Cash App’s diverse ecosystem of financial tools, which include peer-to-peer payment processing, Cash Card, direct deposit and fractional investing in traditional stocks and bitcoin. The two companies expect to close the acquisition before the end of this year.

Square believes that the Credit Karma Tax acquisition provides an opportunity to “further digitize and simplify the tax filing process in the United States, expanding access to the one in three households which are unbanked or underbanked.” (See SQ stock analysis on TipRanks)

Commenting on the acquisition and Cash App’s growing product suite, Rosenblatt Securities analyst Sean Horgan stated, “These offerings have led to tremendous engagement with the Cash App’s monetizable services, primarily the Cash Card. In 3Q20, customers who adopted two or more products generated 3-4x more gross profit than customers who only use P2P. This may create more lifetime value than if it were to charge its customers for these products. This ‘hub-and-spoke’ strategy has been working for the Cash App, and we expect no less from this deal.” Horgan has a Buy rating on Square.

The rest of the Street has a Moderate Buy analyst consensus that breaks down into 18 Buys, 8 Holds and 3 Sells. With Square shares rising a whopping 240.4% year-to-date, the average price target of $191.80 reflects a possible downside of 9.9% in the months ahead.