Square's (NYSE: SQ) wild momentum persisted in the company's fourth quarter, as the financial technology company capped off the year with more strong top-line growth and an impressive jump in its adjusted earnings per share. Revenue climbed 51% year over year while adjusted revenue surged 64% over the same time frame. Meanwhile, Square's adjusted earnings per share increased to $0.14, up from $0.08 in the fourth quarter of 2017.
As Square's impressive business growth continues, investors looking for better insight into the trends behind this growth may want to look beyond these headline figures to the company's fourth-quarter earnings call. During the call, management discussed a range of important topics.
Here are some key quotes from the call.
Square Register. Image source: Square.
The Cash App is fueling product innovation
Square's Cash App, a peer-to-peer payment app that is the most downloaded app of its kind (even outpacing PayPal's Venmo), continues to be a key driver for Square. Not only are monthly active users growing rapidly, more than doubling year over year to 15 million in December 2018, but the technology developed for the app is laying a foundation for product launches for sellers as well.
Square CEO Jack Dorsey explained:
[The Cash App] is amazing to start building an ecosystem focused on financial services for individuals, but it also speaks to the power of building ecosystems so that we can build seller products faster as well. All the tech that we've built for the Cash App powers other product ecosystems as well.
So Instant Deposit came from Cash App technology, as did the Square Card.
Square Card is making a difference
Speaking of the company's Square Card, its new business card, the January-launched financial product for sellers is already off to a good start.
The card gives sellers instant access to funds from sales without having to deposit those funds into a checking account. In addition, sellers get 2.75% cash back when they purchase items or services from other Square merchants. These benefits allow merchants to easily reinvest sales back into their business to support operations and growth.
But there's another benefit Square is witnessing -- a benefit that is particularly helping underserved, smaller sellers. Dorsey explained:
One of the things we've found with our beta sellers for Square Card is that 40% of them didn't have a business debit card before, and this is meaningful because we found that a lot of sellers were mixing their personal bank accounts with what their business was doing, which is very, very hard to manage, took time away from their work and ultimately took time away from making more sales.
One feature of the Square Card allows users to seamlessly manage personal and business expenses separately.
How Square manages risk with Square Capital
Square's fast-growing loan origination arm, which provides sellers with loans that are paid back through taking a percentage of a seller's daily sales, is growing rapidly. Square facilitated $1.6 billion worth of loans over the trailing 12 months, up 36% year over year.
Is Square taking on additional risk to achieve such impressive growth? Square CFO Amrita Ahuja said the company isn't. In fact, Ahuja believes the company's ability to adeptly manage risk with the product is one way it is differentiating from peers' loan products.
We have not changed our criteria with respect to risk -- not taking on incremental risk. And with this product, as you know, we have a long track record of sort of financial discipline, prudent risk management.
We have short-term loans here, generally less than a year, so we have the ability to pivot quickly. We have a lot of data around the broader ecosystem around sellers to inform our models in real time to manage risk. So we believe we have a differentiated product.
Overall, Square's earnings call reinforced the company's knack for building out its ecosystem in a way that solicits organic business growth while simultaneously increasing switching costs for its sellers by providing them with increasingly more value.
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