Square Q3 Earnings: Looking for More Strong Growth

Can the financial-technology company’s top line exceed management’s guidance range, again?

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Point-of-sale technology company Square (NYSE: SQ) has recently been growing rapidly. But its growth hasn’t been good enough for the market — at least that’s what an investor might assume by the stock’s 28% decline over the past year.

Overall, the company has been doing everything right. Revenue has been coming in above expectations and the company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) has been soaring. But for now, high expectations have become the stock’s crutch.

With Square’s shares trading lower, investors will be looking to see if the company can finally impress investors with its latest quarterly results. The company reports its third-quarter earnings on November 6.

Ahead of the results, here’s an overview of two items that investors will want to watch.

Revenue growth

Quarterly revenue crossed $1 billion for the first time in Q2, coming in at $1.17 billion. This was up 44% year over year. But the top-line figure watched more closely by analysts and investors is the company’s adjusted revenue, or total net revenue less transaction-based costs, bitcoin costs, and the impact of deferred revenue adjustment related to purchase accounting. This revenue was up 46% year over year in Q2.

Square’s adjusted revenue growth rate has recently decelerated rapidly. In the fourth quarter of 2018, adjusted revenue increased 68% year over year. This growth rate then fell to 59% in Q1 and 46% in Q2.

But this deceleration may moderate in Q3. Management guided for adjusted revenue during the period to be between $590 million and $600 million.

The midpoint of this guidance range implies 38% growth. But actual revenue typically comes in above management’s guidance range. The high end of management’s guidance range, therefore, is a better indicator of what to expect. Third-quarter adjusted revenue of $600 million implies 39% growth.

Analysts, on average, are currently expecting Square’s third-quarter revenue to come in at $597.5 million.

Subscription and services-based revenue and gross profit

Square’s subscription and services-based revenue has been a key driver for the company, as it’s seeing outsized growth compared to its transaction-based and hardware revenue. Primary drivers in the segment include the Cash App, Square Capital, Caviar, and Instant Deposit.

Revenue from this segment rose 87% year over year to $251 million. More impressively, the segment’s gross profit was $191 million, up 102% year over year. Can this segment keep up its strong momentum in Q3?

Investors should also keep an eye out for any news on the company’s sale of Caviar, Square’s food-ordering platform. The company entered an agreement with DoorDash on Aug. 1 to sell Caviar in a deal valued at $410 million. The transaction is expected to close before the end of the year.

Square will report its third-quarter results after market close on Wednesday, Nov. 6.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square. The Motley Fool has the following options: short January 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

More on Tech Stocks

sale discount best price
Tech Stocks

2 Growth Stocks to Buy Every Time They Go on Sale (Like Now)

The right growth stocks are worth buying in almost any market, but they are especially attractive when they come with…

Read more »

stock data
Tech Stocks

Better Tech Trend for Investors: AI or Graphene?

Even though it’s the newer of two technologies, AI has outpaced graphene by a significant margin in the corporate world.…

Read more »

Man considering whether to sell or buy
Dividend Stocks

DND Stock: Buy, Sell, or Hold?

DND stock (TSX:DND) fell by 17% after producing earnings that once again fell below analyst estimates. But does that mean…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

This Stock Is up 1,440%, But You Can Still Buy it

Constellation Software is a superb company that has made its long-term investors incredibly rich. And it's a good value today.

Read more »

Car, EV, electric vehicle
Tech Stocks

Tesla and Apple Have This 1 Trait in Common, and It’s Making Investors Rich

Tesla and Apple have a lot in common. But this one trait of building an ecosystem is boding well for…

Read more »

Upwards momentum
Tech Stocks

Growth Stocks: A Once-in-a-Decade Opportunity to Get Rich

Here’s a really attractive Canadian growth stock you can buy now and hold for the long term to see your…

Read more »

ETF chart stocks
Tech Stocks

You Don’t Have to Pick a Winner in AI Stocks: Here’s Why

Buy the sector instead of hoping for a moonshot.

Read more »

tsx today
Tech Stocks

TSX Today: What to Watch for in Stocks on Thursday, September 21

Overnight declines in commodity prices and fears of elevated interest rates for longer could drive TSX stocks downward at the…

Read more »