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Square Revises Q2 Guidance, Weebly Acquisition to Aid Growth

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Square, Inc. (SQ - Free Report) has recently issued a revision to its guidance for the second quarter and full year 2018. The company has raised expectations regarding total net revenues and adjusted revenues. However, it has kept the outlook for EBITDA unchanged.

Currently, Square is expecting total net revenues between $744 million and $764 million for the second quarter, which is up from the earlier guidance of $740-$760 million. Further, adjusted revenues are now anticipated to lie in the range of $362-$367 compared with the previous guided range of $355-$360 million.

The upward revision in the outlook for revenues is a result of the company’s completion of acquisition of Weebly on May 31.

However, Square has also raised the guidance for net loss due to this buyout. Net loss is expected to lie in the range of 8-6 cents per share, which is wider than the previous range of 4-2 cents.

Acquisition costs and the company’s recent issuance of convertible senior notes are likely to impact the net income figure. Consequently, the company anticipates incurring wider-than-expected loss.

However, adjusted earnings guidance remains unaltered at 9-11 cents per share.

Coming to the price performance, shares of Square have returned 68.1% on a year-to-date basis, outperforming the industry’s rally of 11.7%.

Outlook for 2018

For 2018, Square expects total net revenues between $3.03 billion and $3.09 billion, up from previous guidance of $3-$3.06 billion. Adjusted revenues are anticipated to lie in the range of $1.45-$1.48 billion which is also higher than the prior range of $1.4-$1.43 billion.

The Weebly acquisition is likely to continue benefiting the company’s top-line growth throughout the year.

Further, net loss per share is also anticipated to be wider than the previous outlook. It now lies in the range of 28-24 cents per share compared with prior range of loss of 4 cents to breakeven.

Additionally, there is downward revision in the outlook for adjusted earnings which are anticipated to be in the range of 42-46 cents per share compared with earlier range of 44-48 cents.

Factors in Detail

Square’s acquisition of Weebly will help it 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.

Consequently, seller base is likely to improve with the growing demand for omnichannel business solutions.

Weebly offers services like paid website design and hosting, free website hosting, an online store and marketing tools to its huge customer base. Now, Square will provide its financial services and marketing services which includes include hardware and software to accept payments, streamline operations and analyze business information for customers. This will bolster the company’s customer base.

Further, Weebly has a total of 625K paid subscribers out of which 40% belong to non U.S. region. This will aid the global expansion of Square.

All these endeavors are expected to drive the top-line growth of the company in the near term as well as in the long run.

However, expenses related to acquisition such as amortization of acquisition-related intangible assets, adjustments in deferred revenue and cash as well as share-based compensation expenses remains negative for the net income of the company.

Additionally, Square announced its plans to issue $750 million aggregate principal amount of 0.50% Convertible Senior Notes due 2023 and signed a purchase agreement with Goldman Sachs, who is the initial purchaser.

On May 25, Square issued $862.5 million aggregate principal amount of notes on the exercise of the purchaser’s over-allotment option. Consequently, the interest expenses related to this issuance are expected to negatively impact the net income of the company.

Zacks Rank and Stocks to Consider

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

A few better-ranked stocks in the broader technology sector are Twitter (TWTR - Free Report) , Upland Software (UPLD - Free Report) and Match Group (MTCH - Free Report) . While Twitter and Upland Software sport a Zacks Rank #1 (Strong Buy), Match Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter, Upland Software and Match Group is projected at 23.1%, 20% and 12.5%, respectively.

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