Square Hits Bullseye With First Revenue Scorecard Since IPO
Investors bolstered Square ( SQ ) stock in after-hours trading, after the mobile payments company late Wednesday posted Q4 revenue that safely exceeded Wall Street’s expectations. In its first earnings release since its November IPO, Square reported sales of $374 million, up 49% from $251 million in the year-earlier quarter. The company’s net loss widened to 34 cents per share from 25 cents in Q4 2014, as operating expenses rose 52% to $157 million. The company didn’t release EPS minus items. On that basis, analysts were expecting a 14-cent per-share loss, up from 11 cents. Analysts polled by Thomson Reuters expect Q1 sales of $325 million, up 29% from the year-earlier quarter. Analyst model a per-share loss minus items of 11 cents, improving from a 14-cent loss in Q1 2015. The company guided to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of a $9 million loss to an $11 million loss, before ending 2016 with an adjusted EBITDA profit of $6 million to $12 million. It posted an adjusted EBITDA loss of $6 million in Q4. Gross payment volume — the total volume of payments processed by the company — rose nearly 50% to $10.2 billion in Q4. The company provided only “adjusted revenue” guidance for Q1, calling for $132 million to $137 million, and for $600 million to $620 million for 2016. It posted adjusted revenue of $135 million for Q4, up 64% vs. Q4 2014. Square stock was up more than 1% in after-hours trading, after the company released its earnings. Shares jumped 4.8% in Wednesday’s regular session, to 12.03, still a far cry from its all-time high of 14.78 touched on its first day of trading. The stock has been volatile — in part, analysts say — because investors weren’t sure how to value the company before its first earnings release. Square provides digital cash registers and credit card readers — which users affix to their smartphones or tablets — targeting smaller businesses, as well as processing the transactions conducted over its point-of-sale hardware. In addition, Square offers its restaurant clients the Caviar app and delivery service. In 2015, Caviar launched in six new markets and is now in 17 markets across the U.S. Square CEO and co-founder Jack Dorsey also is co-founder and CEO at Twitter ( TWTR ), which has led investors to speculate on his ability to run two high-profile companies with big challenges at the same time. On Square’s earnings conference call, Dorsey said his dual jobs have “been working out really well. I benefit a lot from a consistent schedule and structure.” Dorsey said he has separate four-hour meetings on Monday’s with leaders of both companies, and shorter meetings on Wednesdays and Fridays. He pointed out that both San Francisco-based companies are located practically right across the street from one another. But questions like these also have led to a volatile stock, for a company whose rivals on some levels include major companies such as Apple ( AAPL ), PayPal ( PYPL ) and Alphabet ( GOOGL ). Square also provides transaction services such as peer-to-peer payments and other financial services such as payroll and short-term cash advances to its sellers. Square Capital Advances Accelerate Square said that it extended more than $400 million in cash advances in 2015 through its Square Capital business, including $150 million in Q4 alone. The company says that 90% of sellers who have used Square Capital have asked for a second advance. Square Capital offers short-term cash advances to businesses with more than $250,000 in annual revenue. Square charges a flat rate for the cash advance repayments, which are deducted from each transaction a business processes through Square. The company uses the wealth of transaction data it collects about a company to determine how much cash it is willing to advance to a business. Analysts speculate that Square Capital can be a big opportunity for growth because of its product mix and its ability to keep merchants as Square customers. “Our sellers are our partners,” Dorsey said on the call. “When they grow, we grow.” On the call, CFO Sarah Friar said Square has more than 2 million active sellers and “adds 100,000 active sellers per quarter.” In its Q4 release, Square said its Instant Deposit feature, which send funds from a sale immediate to a seller’s bank account for a 1% charge — normally, Square settles payments the next day — has completed 600,000 such deposits since its August launch. Peer-To-Peer Payments In recent weeks Square has upped the ante in its battle against PayPal. Square Cash — the company’s peer-to-peer payments app — recently added a feature called “Cash Drawer” that lets customers store money in their account, instead of transferring it directly to friends. PayPal offers the same feature. It’s possible Square will attempt to leverage the feature into a mobile wallet, much like the direction PayPal’s own Venmo is heading. Venmo is a free person-to-person payment app. PayPal has opened up its “Buy With Venmo” option to “select” PayPal merchants. Buying from a merchant triggers transaction fees, which PayPal hopes will make the app profitable. Square is taking a similar approach, letting people check out with Square Cash at businesses that use Square’s digital cash register and transaction processing technology — much the way Apple Pay and Android Pay, Google’s version of a digital wallet, do.