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Square's (SQ) Earnings and Revenues Beat Estimates in Q3

Square Inc. SQ reported third-quarter 2019 adjusted earnings of 25 cents per share, which beat the Zacks Consensus Estimate by 25% and was higher than management’s guided range of 18-20 cents per share. Further, the figure improved 92.3% on a year-over-year basis and 19% sequentially.

Net revenues of $1.27 billion surpassed the Zacks Consensus Estimate of $1.15 billion and came ahead of the guided range of $1.13 billion to $1.15 billion. The figure improved 44% from the year-ago quarter and 8.5% sequentially.

Per management, adjusted revenues came in $602.2 million, up 40% year over year and 7% from the prior quarter. The figure was also higher than management’s guided range of $590-$600 million.

The top line was driven by Seller ecosystem that contributed $918 million to net revenues, up 27% year over year. Further, robust performance of Cash App during the reported quarter was a major positive. Furthermore, strengthening adoption rate of Bitcoin and Cash Card contributed to the results.

Additionally, continued acceleration in gross payment volume (GPV) of the company drove the results.

We believe the company’s solid momentum across sellers and strong product portfolio drove results and is likely to continue aiding its performance in the near term.

Gross Payment Volume

GPV in the third quarter amounted to $28.23 billion beating the Zacks Consensus Estimate of $27.95 billion. Notably, the figure improved 25.5% year over year and 5.4% on a sequential basis.

Year-over-year growth was driven by the company’s continued momentum across the larger sellers.

Square defines larger sellers as those that make more than $125,000 of annualized GPV and mid-market sellers as those with annualized revenues of more than $500,000.

GPV from larger sellers contributed 55% to total GPV, up 34% year over year. Further, Square witnessed strong contributions from mid-market sellers who accounted for 27% of total GPV, up 44% from the year-ago quarter.

This can be attributed to Square’s robust product portfolio and comprehensive ecosystem that aids the company in attracting new sellers to its platform while retaining the existing ones.

Additionally, robust Square Terminal and Square Register continued to contribute to GPV growth.

Square, Inc. Price, Consensus and EPS Surprise

 

Square, Inc. Price, Consensus and EPS Surprise

Square, Inc. price-consensus-eps-surprise-chart | Square, Inc. Quote

Top-Line Details

Transaction (64.5% of net revenues): The company generated transaction revenues of $816.6 million, up 24.6% year over year. Revenue growth within this category can be attributed to strengthening momentum across sellers and well-performing Cash App.

Subscription and services (22.1% of revenues): The company generated $279.8 million revenues from this category, soaring 68.3% from the year-ago quarter. This improvement can be attributed to the strong performance by Cash App and Instant Deposit. Further, Square Capital, which facilitated $563 million of business loans during the third quarter, up 39% year over year, contributed to the category’s revenues.

Hardware (1.7% of revenues): Square generated $21.8 million of revenues from this business, up 23.9% year over year. The top line within this category was primarily driven by robust Square Terminal.

Bitcoin (11.7% of revenues): The company generated $148.3 million revenues from this category, soaring 245.1% on a year-over-year basis. Square continues to benefit in the bitcoin space on the back of growing momentum of Cash App among users.

Operating Details

Per management, gross profit as a percentage of net revenues came in 39.5%, contracting 40 bps year over year. Although Transaction, Subscription and services and Bitcoin generated profit, Hardware category generated loss during the reported quarter.

Adjusted EBITDA as a percentage of adjusted revenues was 21.8%, expanding 530 bps year over year.

Operating expenses came in $467.9 million, surging 29% from prior-year quarter.

Product development expenses were $168.8 million, up 24.3% year over year, primarily owing to growing engineering, data science and design personnel costs.

General and administrative expenses were $115.9 million, up 35.6% from prior-year quarter. This was primarily owing to finance, legal and support personnel costs.

Further, sales and marketing costs were $149.5 million, up 28.5% year over year, due to increase in Cash App peer-to-peer payment transfer and Cash Card issuances.

Balance Sheet

As of Sep 30, 2019, cash and cash equivalents balance was $612.04 million, down from $617.28 million as of Jun 30, 2019.

Short-term investments were $557.6 million in the reported quarter, down from $572.2 million in the previous quarter.

Long-term debt was $928.9 million, increasing from $919 million in previous quarter.

Guidance

For fourth-quarter 2019, Square expects net revenues between $1.16 billion and $1.18 billion. The Zacks Consensus Estimate for revenues is pegged at $1.19 billion.

Further, adjusted revenues are anticipated in the range of $585-$595 million. Adjusted EBITDA is expected in the band of $112-$117 million.

Adjusted earnings are expected in the range of 19-21 cents per share. The Zacks Consensus Estimate for earnings is pegged at 25 cents.

For 2019, Square raised the guided range for total net revenues from $4.41-4.47 billion to $4.56-$4.58 billion. The Zacks Consensus Estimate for net revenues is currently pegged at $4.47 billion.

Further, management revised adjusted revenue guidance downward from $2.25-$2.28 billion to $2.24-$2.25 billion. Adjusted EBITDA is anticipated in the range of $410-$415 million.

Adjusted earnings are projected in the range of 76-78 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 77 cents per share.

Zacks Rank & Other Key Picks

Square currently has a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Alteryx, Inc. AYX, CommVault Systems, Inc. CVLT and Zendesk, Inc. ZEN. While Alteryx and CommVault flaunt a Zacks Rank #1 (Strong Buy), Zendesk carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, CommVault and Zendesk is currently pegged at 39.85%, 10% and 29.52%.

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