Square (SQ) Q4 Earnings to Reveal Strength of Payment Ecosystem

Payments processing specialist Square, Inc. (SQ) will report fourth quarter fiscal 2016 earnings results after the closing bell today. The San Francisco, Calif.-based company, lead by CEO Jack Dorsey, 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.

Dorsey, who also serves as CEO of Twitter (TWTR), has done at Square what he’s been unable do at Twitter: Convince analysts that the company’s long-term potential is real. The company’s lending business, Square Capital, which aims to provide financing and bank loans for small businesses, is looked upon as a key growth contributor in the future.

Square shares closed Tuesday at $14.63. The stock has risen 8% year to date, while soaring 41% over the past twelve months, besting the S&P 500 index in both spans. This afternoon the company must affirm the sustainability of these gains. Aside from the top- and bottom-line numbers, analysts will focus on Square’s 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 January, Wall Street expects Square to lose 9 cents per share on revenue of the $449.6 million, compared to the year-ago quarter when it lost 20 cents per share on $374.36 million in revenue. For the full year, the loss is expected to be 55 cents per share on revenue of the $1.7 billion, which compares to last year’s loss of $1.06 on $1.27 billion in revenue.

Another area analysts will focus on this afternoon will be Square’s gross payment volume (GPV), which surged 39% year over year in third quarter, reaching $13.2 billion. 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 in 2012.

In terms of profitability, third-quarter adjusted EBITDA margin of 7%, up a full 20 points year over year, was also a welcomed surprise. And the fact that this was achieved on net revenue was $439 million, up 32% year over year, suggested that Square, despite spending to innovate its software and services, has become a well-oiled machine from top to bottom. To the extent Dorsey can keep these metrics heading in the right direction, it will be hip to be a Square investor for the foreseeable future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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