Square Inc. SQ will report its Q2 earnings results after market close on Thursday, August 1. YTD, SQ stock is up 43% to help the fintech firm easily outperform the S&P 500’s 19% gain.
San Francisco-based Square is a merchant services aggregator and mobile payment company. Its first product, the Square Reader, helped kick of the fintech age by allowing individuals and small businesses to accept credit card payments through a mobile device. Square has continued to improve its original product and developed multiple other offerings as it slowly transforms into a more complete financial services company.
Another large part of Square’s business is its person-to-person payment offering. The Cash App allows users to send money to other users for free and offers a Visa V debit card, called a Cash Card, that is connected to the Cash App account. Cash App generates revenue through the fees it charges to users who want to expedite transfers between accounts, company’s that accept Cash App, and through its facilitation of Bitcoin trades.
SQ is currently trading with a P/S of 6.66, just slightly higher than its industry average of 6.61. Square has historically traded close to the industry in terms of price to sales, which suggests a relatively fair value at the moment. It is important to point out that over the past 12 months SQ stock has soared while its P/S ratio has decreased significantly. This is important because it shows that the company’s sales are increasing at a faster rate than its stock price.
Q2 Outlook & Earnings
In Q2, Square is expected to report revenue of $1.11 billion according to our Zacks Consensus Estimates. This would mark a 36.22% jump from Q2 2018. It is the first quarter that revenues are expected to surpass the $1 billion milestone, and Q2 is set to continue a trend of excellent revenue growth over the past three years. The growth is not expected to stop after this quarter either, with fiscal 2019 revenue growth expected to surge 35.52%. Revenue are then expected to come in over $5 billion in fiscal 2020.
Transaction revenue is expected to grow nearly 25% and account for around 70% of total revenue in Q2, according to our Key Company Metrics. Much of this anticipated increased transaction revenue can be attributed to a 25% projected increase in gross payment volume.
Meanwhile, earnings are expected to increase 23.1% year-over-year to $0.16 a share. Square is forecasted to continue growing the rest of the fiscal year as well, with an expected EPS of $0.75, compared to fiscal 2018’s EPS of $0.47. This EPS would represent a 59% increase year-over-year. Looking further ahead, fiscal 2020 is expected to have an additional 45% growth, bringing its EPS to $1.09.
Square’s growth outlook is rather impressive for a company that started in 2009. Square’s expansion into cryptocurrency, P2P transactions, and mobile payments should help it expand its reach in a world that is becomes paperless and convenience-focused and every day.
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