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Square's (SQ) Q1 Earnings & Revenues Beat Estimates, Up Y/Y

Zacks Equity Research

Square Inc. SQ delivered first-quarter 2019 adjusted earnings of 11 cents per share, which beat the Zacks Consensus Estimate by 3 cents and was also higher than management’s guided range of 6-8 cents per share. The figure also soared 83.4% on a year-over-year basis but fell 21.4% on a sequential basis.

Net revenues of $959.36 million surpassed the Zacks Consensus Estimate of $942.62 million and also came ahead of the guided range of $918 million to $938 million. The figure increased 43.5% from the year-ago quarter and 2.9% sequentially.

Per the company, adjusted revenues came in $489.05 million, up 59.4% year over year and 5.3% from the previous quarter. The figure also comfortably outpaced management’s revised guided range of $472-$482 million.

The top line was driven by robust contributions from Weebly and Zesty buyouts, and growing adoption of Cash App. Further, continued acceleration in gross payment volume (GPV) of the company drove the results.

Notably, shares of the company dropped 6.07% in the after-hours trade on May 1 following the lower-than-estimated GPV in the reported quarter and weaker-than-expected second-quarter 2019 earnings guidance.

Nevertheless, its robust product portfolio and strengthening seller contribution are expected to aid business growth in the near term.

Coming to the price performance, shares of Square have returned 51.3% over a year, outperforming the industry’s rally of 28.5%.

Gross Payment Volume

Gross Payment Volume in the first quarter came in $22.59 billion which missed the Zacks Consensus Estimate of $22.68 billion. Notably, the figure increased 27% year over year but decreased 1.6% 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 51% to total GPV, up 37% year over year. Further, Square experienced strong contributions from mid-market sellers who accounted for 24% of total GPV, up 50% 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 and retaining the existing sellers as well.

Additionally, strong performance of Square Invoices and Square for Retail boosted GPV growth during the reported quarter. Further, robust Cash App whose volume accelerated 2.5 times year over year contributed well.

Top-Line Details

Transaction (68.5% of net revenues): The company generated transaction revenues of $656.76 million, up 25.6% year over year. Revenue growth within this category can be attributed to strengthening momentum across sellers driven by friendly ecosystem, robust products and payback offers for new sellers.

Subscription and services (22.8% of revenues): The company generated $218.86 million revenues from this category, soaring 125.5% from the year-ago quarter. This improvement came primarily on the back of benefits from Weebly and Zesty buyouts excluding which the category’s top-line growth would have been 97%. Further, strong performance of Cash Card, which sustained growth in its monthly active users during the first quarter aided revenue generation. Additionally, robust Caviar, Instant Deposit and Cash App were major positives. Moreover, robust Square Capital which facilitated $508 million of business loans during the first quarter increased 50% from the year-ago quarter.

Hardware (1.9% of revenues): Square generated $12.21 million of revenues from this business, up 26.3% year over year. The top-line growth within this category was primarily driven by Square Stand, Square Register, Square Terminal and the company’s solid momentum with third-party peripherals.

Bitcoin (6.8% of revenues): Square generated $65.53 million revenues from this category, soaring 92.2% 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.

Square, Inc. Price, Consensus and EPS Surprise

Square, Inc. Price, Consensus and EPS Surprise | Square, Inc. Quote

Operating Details

Per the company’s report, gross profit as a percentage of net revenues came in 41.4%, expanding 320 bps year over year.

Adjusted EBITDA as a percentage of adjusted revenues was 12.6%, expanding 90 bps year over year.

Operating expenses came in $418.8 million, surging 51.6% from prior-year quarter. Adjusted operating expenses were $339.7 million, up 53.8% year over year.

Product development expenses were $153.6 million, up 46% year over year, primarily owing to growing engineering, data science and design personnel costs. Further, cost related to Weebly acquisition led to increase in these expenses.

General and administrative expenses were $101.6 million, up 35% from prior-year quarter. This was primarily owing to finance, legal and support personnel costs.

Further, sales and marketing costs were $133.7 million, up 73% year over year, due to increase in Cash App peer-to-peer payment transfer, advertising and personnel costs.

Balance Sheet

As of Mar 31, 2019, cash and cash equivalents balance was $521.7 million, down from $583.2 million as of Dec 31, 2018. Short-term investments were $566.5 million in the reported quarter, up from $540.9 million in the previous quarter.

Long-term debt was $909.3 million, increasing slightly from $899.7 million in previous quarter.


For second-quarter 2019, Square expects net revenues between $1.09 billion and $1.11 billion. The Zacks Consensus Estimate for revenues is pegged at $1.10 billion.

Further, adjusted revenues are anticipated in the range of $545-$555 million. Adjusted EBITDA is expected in the band of $90-$94 million.

Adjusted earnings are expected in the range of 14-16 cents per share. The Zacks Consensus Estimate for earnings is pegged at 18 cents per share.

For 2019, Square raised the guided range for total revenues from $4.35-$4.41 billion to $4.41-4.47 billion. The Zacks Consensus Estimate for net revenues is currently pegged at $4.43 billion.

Further, the guided range for adjusted revenues also got revised upward from $2.22-$2.25 billion to $2.25-$2.28 billion. Adjusted EBITDA is anticipated in the range of $405-$415 million.

Adjusted earnings are projected in the range of 74-78 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 73 cents per share.

Zacks Rank and Stocks to Consider

Currently, Square carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are ACI Worldwide, Inc. ACIW, Avid Technology, Inc. AVID and Agilent Technologies, Inc. A. While ACI Worldwide and Avid Technology currently sport a Zacks Rank #1 (Strong Buy), Agilent Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for ACI Worldwide, Avid Technology and Agilent Technologies is projected at 12%, 10% and 11.75%, respectively.

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