Payments processing specialist Square (SQ) will report third quarter fiscal 2018 earnings results after the closing bell Wednesday.
Led by CEO Jack Dorsey, the San Francisco, Calif.-based company has made aggressive moves to grow beyond just a card reader platform to a service that provides consumers with a host of payroll tools, employee management and analytics. These moves, which has sent Square stock soaring 120% year to date and almost 500% in three years, have been broadly applauded by investors.
While Square continues to accelerate revenue growth by adding to its ecosystem of products and services, the past few weeks have nonetheless been anything but money in the bank. Its shares have sold off over the past month, losing more than 20% of its value. Valuation concerns and recent executive departures have placed investors in a risk-off mentality, despite the company last quarter raising its full-year revenue guidance.
On Wednesday, among other things Square must do, the company must erase doubt about whether its remaining leadership team is as strong as those who have left. Dorsey, who also serves as CEO of Twitter (TWTR), must convince analysts that the company’s long-term potential is real. Square must also demonstrate that its lending business, Square Capital, which aims to provide financing and bank loans to small businesses, can be the growth contributor it has been touted to become.
Elsewhere, analysts will also focus on operating expense and the extent to which it will begin to shift its focus towards boosting profitability and cash flow.
For the three months that ended September, Wall Street expects Square to earn 11 cents per share on revenue of $413.67 million. This compares to the year-ago quarter when earnings came to 7 cents per share on revenue of $257.12 million. For the full year, ending December, earnings are projected to rise 66% year over year to 45 cents per share, while full-year revenue of $1.55 billion would rise 57% year over year.
In its second quarter, the company delivered its fifth straight period of accelerated revenue growth, which rose 48% year over year, rising above the 45% growth enjoyed in the first quarter. Understandably, expectations remain high as Q3 estimates calls for growth of 61% year over year. Another area analysts will focus on will be Square’s gross payment volume (GPV), which surged 30% year over year in second quarter.
Just as impressive, GPV from larger sellers increased 42% year over year, accounting for 50% of total GPV during the quarter, up from 46% in the year-ago quarter. GPV measures the number of transactions processes on on Square’s platform and underscores the strength of the overall business. This trend has been steadily rising since GPV was $6.5 billion back in 2012. To the extent these trends continue would justify the strong year-to-date performance in Square stock. Conversely, if there is any weakness, the recent 20% slide may continue.