Square insiders and investors were blindsided by the departure of their 'beloved' CFO — and no one can agree on how bad it is for the $28 billion company's future (SQ)

Sarah Friar Square

Employees and Wall Street alike were surprised to learn that Square Chief Financial Officer Sarah Friar will leave the company.
Friar, who employees described as a "beloved" leader, is seen widely as an important figure in Square's success.
Analysts expressed concern following the news that Square may struggle to rebound from the loss — but staffers are happy to see Friar move onto a CEO role.

The news this week that Square CFO Sarah Friar is resigning surprised employees and outside investors alike, leaving both groups trying to predict what it means for the $28 billion payments company to lose its second-in-command.

Like spurned lovers bewildered by a breakup, both Square staffers and analysts echoed similar sentiments: By all appearances, things were going well. Friar was active and engaged. There were no signs that this was coming.

"We traveled with Ms. Friar just two weeks ago and saw no signs of this move as she was fully engaged and enthusiastic throughout our day of meetings," wrote Robert Napoli, analyst at William Blair, in a note Wednesday.

One staffer described the sense of unease that spread through Square's Market Street headquarters once CEO Jack Dorsey's memo hit people's inboxes on Wednesday afternoon, breaking the news to staff that Friar will leave in December to join Nextdoor as CEO.

"My first reaction was to text all of my closest coworkers," said another staffer. "She's beloved. I was surprised at first and then I felt very proud of the way Jack responded to it."

Friar and Dorsey balanced each other out

Jack Dorsey

To many employees at Square, staffers said, Friar is a highly-regarded and motivating executive, who's kept the ship steady while Dorsey focused on vision. Though CFO since 2012, she had taken on a more diverse role in recent months, according one staffer, and was heavily involved across other aspects of the business.

As soon as Dorsey shared the news with the staff, Friar sent her own email thanking her team and explaining why she decided to join Nextdoor, employees said.

"It was super positive. It's bitter sweet. But everyone is very happy for her," one person said.

Employees described her lovingly as type-A and the opposite of Dorsey in her managerial approach — him the creative, and her the more realistic executor.

They balanced each other out, one employee said, adding that there's a joke at the company that Dorsey — who's known for his rigid diet and exercise routine — is always trying to get Friar to start meditating.

While employees appreciated this dynamic, Wall Street shared some concerns that it might be a problem for Dorsey down the road.

"Ms. Friar’s level of leadership has been an important aspect affording Mr. Dorsey ample leeway to perform as a dual CEO, in our view," wrote Citi analyst Peter Christiansen, in reference to Dorsey's other gig as CEO of Twitter. "Whether it’s true or not, there is clearly a perception by many outside of the company, investors and press alike, that Ms. Friar essentially ran the company."

Wall Street is torn on what this means for the stock

Friar's announcement — which came during Wednesday's market-wide selloff — brought the stock down more than 30% from its all-time high on October 1 of $101.15.

While utter surprise was a common theme in Wall Street's response to the news, analysts had mixed views about what this means for Square in the longrun.

Mark Palmer at BTIG, a longtime skeptic, maintained his "sell" rating on the stock and reiterated a price target of $30, even though the stock traded around $70 after the initial selloff on Thursday.

"We believe Friar’s pending departure from SQ introduces a significant new element of uncertainty into the company’s story that may further weigh on its valuation," Palmer wrote.

But other analysts kept the stock rated at "buy" or "hold," with many noting that Dorsey's stated reason for Friar's departure — to pursue her dream of being a CEO — was not cause for alarm.

Still, analysts noted, her departure is difficult for the investor community, as she was the main point of contact at Square for many people on Wall Street.

"Ms. Friar has been pivotal in managing Street expectations,and helped the company deliver consistent 'beat and raises,' in our view," wrote Morgan Stanley analyst James Faucette.

"We don’t believe there’s much to read into Ms. Friar’s departure as she’s leaving to take on a CEO role and will assist with the transition," wrote Steven Kwok, analyst with Keefe, Bruyette & Woods. "However, it’s a tough loss for the company given that she was well respected by the Street and investors, which is likely leading to the shares being down after-hours."

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