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Square (SQ) Earnings and Revenues Surpass Estimates in Q1

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Square Inc. (SQ - Free Report) reported first-quarter 2018 adjusted earnings of 6 cents per share, which beat the Zacks Consensus Estimate by a penny and also came ahead of management’s guided range of 3-5 cents per share. The figure also surged 20% on a year-over-year basis but decreased 25% sequentially.

Net revenues of $669 million surpassed the Zacks Consensus Estimate of $624 million and also came ahead of the guided range of $605-$620 million. The figure increased 44.8% from the year-ago quarter and 8.6% on a sequential basis.

Adjusted revenues came in $307 million, which were up 50.5% year over year and 8.5% from the previous quarter. The figure also surpassed management’s guided range of $290-$295 million.

The year-over-year top-line growth was driven by robust product performance, especially CashApp which accelerated the bitcoin revenues of Square. Moreover, strong gross payment volume (GPV) aided the first quarter results.

During the first quarter, Square rolled out Instant Deposit and Cash App in United Kingdom which expanded its reach in the country. Both the products will continue to drive top-line of the company, given the cash flow management status of the country.

Additionally, the company announced the acquisition of Weebly, which will help Square to improve its omni-channel business by combining Weebly’s web presence tools with Square’s in-person and online offerings. This will enhance the company’s service to sellers.

Also, larger sellers will continue to adopt Square platform, courtesy given to its friendly ecosystem.

However, share price of the company dropped more than 4% on Wednesday. Shares of Square have returned 40.3% on a year-to-date basis, outperforming the industry’s rally of 4%.

 



 

Gross Payment Volume

Gross Payment Volume in the reported quarter increased almost 31% year over year to $17.8 billion, driven by growth in larger sellers.

Square defines larger sellers as those who make more than $125,000 of annualized GPV and midmarket sellers as those who make more than $500,000 of annualized revenues.

GPV from larger sellers contributed 47% to total GPV and was up 44% year over year. This was driven by strengthening relationships with these sellers that can be attributed to robust product portfolio of the company.

Moreover, Square Register which was launched last December performed well with the existing sellers and also attracted new sellers to the platform in the reported quarter. Further contribution from Invoices, Virtual Terminal and E-Commerce API payments to GPV was double in the reported quarter when compared to year-ago period.

Top-Line Details

Transaction (78.2% of net revenues): The company generated transaction revenues of $523 million, up 29.6% year over year but down 0.3% sequentially. The rise can be attributed to robust growth in Invoices, Virtual Terminal, and E-Commerce API payments. Transaction-based revenues as a percentage of GPV were 2.93%, down slightly from 2.96% in the year-ago quarter. Further, transaction-based profit as a percentage of GPV was 1.09%, up from 1.07% in the prior year quarter. This was attributed to improvement in transaction cost profile.

Subscription and services (14.5% of revenues): The company generated $97.1 million revenues from this category, which increased 97.7% from the year-ago quarter and 22.3% on a sequential basis. This improvement was driven by strong performance of Instant Deposits, Caviar and Square Capital which facilitated $339 million of business loans, up 35% from the year-ago quarter. Further, Cash Card’s gaining traction in the market also remained positive.

Hardware (2.2% of revenues): Square generated $14.4 million of revenues from this business, up 60% year over year and 20% sequentially. The impressive year-over-year growth was driven by Square Register which exhibited roughly $300 thousand average annual GPV of a seller. Additionally, Square Register’s steady growth in Square Stand remained positive for the top-line growth in this category.

Bitcoin (5.1% of revenues): Square generated $34.1 million revenues from this category. The company entered the bitcoin space for the first time this January and performed very well with its Cash App, which is expanding globally. Without bitcoin revenues, the company’s net revenues would have been $635 million and would have surged 35% year over year.

Operating Details

Per the company’s report, gross profit as a percentage of net revenues came in 38.1% which expanded 60 basis points (bps) year over year but contracted 80 bps sequentially.

Adjusted EBITDA margin was 12%, down 100 bps year over year and 260 bps on a sequential basis, primarily due to continued higher investments.

Non-GAAP operating expenses as percentage of adjusted revenues declined 80 bps on a year-over-year basis to but increased 110 bps to 71.9%.

Adjusted product development expenses were $69.1 million, slightly up 51.8% year over year. This was due to increasing engineering, product, data science and design personnel costs.

Non-GAAP general and administrative expenses were $62 million which went up 37.5% from prior year quarter. This was primarily due to finance, legal, and support personnel costs.

Further, sales and marketing costs were $72 million, up 56% year over year, which was due to an increase in Cash App peer-to-peer payment transfer, advertising and marketing and personnel costs.

 

Square, Inc. Price, Consensus and EPS Surprise

 

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

 

Balance Sheet

As of Mar 31, 2018, cash and cash equivalents balance was $$738.5 million compared with $696.5 million as of Dec 31, 2017. Short-term investments were $200 million in the reported quarter, up from $169.6 million in the last quarter.

Long-term debt was $362.9 million, which increased from $358.6 million in previous quarter.

Guidance

For second-quarter 2018, Square expects net revenues between $740 million and $760 million. The Zacks Consensus Estimate for revenues is currently pegged at $725.7 million.

Further, adjusted revenues are expected in the range of $355-$360 million. Adjusted EBITDA is expected in the range of $60-$64 million.

Adjusted earnings are expected in the range of 9-11 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 12 cents per share.

For 2018, Square expects total revenues between $3 billion and $3.06 billion, up from the previous guided range of $2.82-2.88 billion. The Zacks Consensus Estimate for net revenues currently stands at $2.89 billion.

Also, the company raised its guidance for adjusted revenues from $1.3-$1.33 billion to $1.4-$1.43 billion.

Adjusted EBITDA is anticipated in the range of $240-$250 million. The mid-point reflects year-over-year growth of 19%.

Adjusted earnings are projected in the range of 44-48 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 46 cents per share.

Zacks Rank and Other Stocks to Consider

Square currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader technology sector are Micron Technology (MU - Free Report) , Nice (NICE - Free Report) and Match Group (MTCH - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Micron Technology, Nice and Match Group is projected at 10%, 12.5% and 12.5%, respectively.

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