Shares of Square (SQ - Free Report) popped nearly 4% through late-afternoon trading Thursday despite posting lower-than-expected Q1 earnings guidance Wednesday. The financial tech firm’s overall Q4 performance appeared strong and its growth initiatives seem to be paying off. So is now the time for investors to buy Square stock on the dip while they still can as the company tries to shake up the traditional credit card and banking industry?
Quick Q4 Overview
Square’s total fourth-quarter revenue surged 51% from the year-ago period to reach $933 million, which easily topped our $908 million Zacks Consensus Estimate. For the full year, the company's revenues climbed 49% to reach $3.29 billion and surpassed our estimate.
At the bottom end of the income statement, the San Francisco-based firm’s adjusted quarterly earnings surged 75% from $0.08 per share in the year-ago period to reach $0.14 a share. This also topped our estimate by $0.01. Overall, the company reported a GAAP net loss of $28.2 million, which was worse than the prior-year quarter as it invested more heavily in its future.
Looking ahead, Square said it expects to report adjusted Q1 earnings between $0.06 and $0.08 a share. This came in below our $0.11 a share estimate prior to the firm’s earnings release. Despite the disappointing updated first-quarter earnings outlook, the company’s full-year guidance of $0.74 to $0.78 per share topped our $0.70 estimate that would have marked over 51% growth.
Furthermore, the high-end of SQ’s current quarter revenue guidance of between $918 million to $938 million, surpassed our $925.80 million estimate, and would mark approximately 40% year over year growth. Clearly, it seems that the fintech firm performed pretty well and its weaker guidance could lead to a more robust and diversified ecosystem in the long run.
Details & Growth Opportunities
Square’s gross payment volume, a widely tracked Wall Street metric, surged 28% in the quarter to reach $23.0 billion. More specifically, the firm’s larger sellers—process $125,000 or more annualized—surged 39% and accounted for 51% of total GPV, up from jump from 47% in Q4 2017. Meanwhile, its fourth-quarter subscription and services segment skyrocketed 144% to hit $194 million, driven in large part by the continued expansion of Instant Deposit, Cash Card, Caviar, and Square Capital.
On top of that, Square’s Cash App peer-to-peer payment platform boasted more than 15 million monthly active customers in December 2018. This was more than double the year-ago quarter’s total and helps SQ stand out against competitors like PayPal (PYPL - Free Report) and JP Morgan Chase (JPM - Free Report) . The company also offers a Visa (V - Free Report) debit card connected only to a user’s Cash App balance, which looks poised to expand as more users search for financial offerings outside of the traditional banking system.
Furthermore, the company’s business-lending leg, Square Capital, said it facilitated roughly 72,000 loans for a total of $472 million. This marked a 55% year over year surge. Plus, Square introduced an In-App Payments SDK that allows app developers to utilize Square’s back-end payment infrastructure on their platforms.
Investors should note that the company’s in-app offering could become a significant business as mobile shopping rapidly expands. Some industry estimates suggest that mobile will account for almost half of all digital retail by 2020. For example, Nike (NKE - Free Report) said last quarter that mobile made up well over 50% of its digital commerce revenue, and its CFO expects its digital division will comprise 30% of the firm’s total business by 2023, compared to roughly 15% currently.
Square has come a long way since CEO and current Twitter (TWTR - Free Report) boss Jack Dorsey founded the firm in 2009 to help micro-businesses and entrepreneurs process credit card payments from their mobile devices. Still, Q4 hardware revenue surged 51% on the back of the new Square Terminal, which launched in November.
Dorsey and executives want to turn Square into a well-rounded financial services firm for the modern digital age. The company is set to grow as more people begin to use digital payment offerings from the likes of Google (GOOGL - Free Report) , Apple (AAPL - Free Report) , and others. Square also stands to profit from a potentially untapped consumer group. “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,” Dorsey said on the firm’s conference call.
Investors will note that Square stock has crushed the market and giants like Amazon (AMZN - Free Report) over the last three years. And with offerings such as small business-focused payroll management systems, Square could be headed for even more growth.
SQ stock was up 3.85% to $82.37 a share in late afternoon trading Thursday. This represented a roughly 19% downturn compared to its 52-week high of $101.15 per share and gives Square stock plenty of room to run.
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