Payments processing specialist Square (SQ) will report second-quarter fiscal 2019 earnings results after the closing bell Thursday, and investors will want to know just how much has the company’s payment ecosystem has grown amid recent competition.
Shares of Square took a beating in the first quarter, falling by double digits, on concerns of slowing growth, even though the payment processor posted a beat on both the top and bottom lines. Since then, the stock has come roaring back, rising 40% so far this year. Management’s guidance has been weak for two straight quarters, causing the share price to fall. But it would appear investors have forgiven the company. The strength of its gross payment volume (GPV), which in the first quarter rose 27%, has been a cause for concern.
While the GPV growth rate topped consensus estimates, it declined moderately from the fourth quarter and has trended lower from prior growth rates of more than 30%. In other words, Square needs a strong earnings report Thursday to keep this impressive rally going. The company will need to show it can re-accelerate revenue growth as it did in the five quarters prior to the first quarter of this fiscal year and issue an outlook that suggests confidence about the strength of the business.
For the three months that ended June, Wall Street expects the San Francisco, Calif.-based company to earn 16 cents per share on revenue of $557.07 million. This compares to the year-ago quarter when earnings came to 13 cents per share on revenue of $385.43 million. For the full year, ending in December, earnings are projected to increase 61% year over year to 76 cents per share, while full-year revenue of $2.28 billion would rise 43.5% year over year.
In the first quarter, Square delivered adjusted revenue growth of 59% year over year, while net revenue, which excluded acquisitions such as Weebly, grew 43% year over year. Adjusted EPS was also strong, coming in at 11 cents per share, topping Street forecast by 3 cents. Just as impressive, GPV clocked in at $22.6 billion, better than the $22.4 billion analysts were expecting. But the stock took a beating due to the company’s weak guidance.
While the company raised adjusted full-year revenue guidance to a range of between $2.25 billion and $2.28 billion, second-quarter earnings guidance came in light, with the company forecasting earnings per share between 14 cents and 16 cents on revenue between $545 million and $555 million — both lower than consensus. On the bright side, the company’s Cash App platform seems to be outperforming PayPal’s (PYPL) Venmo.
During the first quarter, the company reported that the app’s volumes (the amount of money moved through it) had risen nearly 150% year-over-year. Analysts will want to see continued improvement in this area. Square’s challenge is to convince the market that Cash App, which currently has a lower revenue base in the larger Square ecosystem, can eventually grow to become a profit center for the company.
Investors on Thursday will look to see whether this bullish thesis is realistic. All told, Square has made aggressive moves to grow beyond just a card reader platform to a service that provides businesses with a host of payroll tools, employee management and analytics. And it appears that these moves are paying off. To the extent these growth metrics can continue to improve, Square stock can still pay for many years to come.