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Square Earnings: What to Watch

Daniel Sparks, The Motley Fool

Financial technology company Square (NYSE: SQ) has seen some incredible growth recently -- both in its business and its stock price. Adjusted revenue surged 61% year over year in 2018 as non-GAAP earnings per share jumped from $0.27 in 2017 to $0.47 last year. Such strong results have helped propel the stock higher; shares climbed 52% over the past 12 months.

Of course, with such strong performance in the rearview mirror, the bar is high for Square to keep up this robust growth. This is why investors will be watching the company closely when it reports its first-quarter results on May 1. 

Here's a look at some key items investors may want to check on when the results are posted.

An employee and customer interact with the two displays included with Square Register

Square Register. Image source: Square.

Revenue growth

After six quarters in a row of accelerating revenue growth, the streak finally ended in Square's fourth quarter. But this doesn't mean growth still wasn't impressive. The company's fourth-quarter revenue surged 51% higher compared to the year-ago quarter while its adjusted revenue increased 64%. This compares to 51% and 68% year-over-year growth for these top-line figures, respectively, in Q3.

Revenue growth during the quarter was driven by the same key catalysts that have been driving the company's growth throughout 2018: a continually growing ecosystem of subscriptions and services and robust growth in gross payment volume, particularly with large sellers.

For Square's first quarter of 2019, analysts are looking for adjusted revenue of $478 million -- a figure toward the high end of management's guidance range for first-quarter adjusted revenue between $472 million and $482 million. Notably, the midpoint of management's guidance range represents 55% year-over-year growth in adjusted revenue.

Large sellers

Sellers with $125,000 or more in annualized gross payment volume have been driving outsize growth in the company's gross payment volume recently. GPV from these sellers rose 39% year over year in the fourth quarter of 2018 and accounted for 51% of the quarter's total GPV -- up from 47% of GPV in the fourth quarter of 2017.

Can Square keep up such sharp GPV growth in large sellers in Q1?

Subscription and services-based revenue

Finally, investors will want to check on Square's subscription and services-based revenue, or revenue from fast-growing products like Instant Deposit, Cash Card, Caviar, and Square Capital. Subscription and services-based revenue soared 144% year over year during Q4 to $194 million. When excluding revenue from the company's recent acquisitions of Zesty and Weebly, revenue climbed 112% year over year to $168 million.

Investors should look for subscription and services-based revenue when excluding acquisitions of Zesty and Weebly to double on a year-over-year basis, as any deceleration in these subscriptions and services should be moderate.

Square is scheduled to report its first-quarter results after market close on Wednesday, May 1.

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Daniel Sparks owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.