I must admit, I keep expecting Square to start throwing millions of dollars to the bottom line at an moment, a la Arista. When I first looked at this quarter, I was immediately excited about the revenue growth continuing to accelerate. But I must admit, when I saw the operating loss (which they’ve managed to keep near $13M for 5 straight quarters, by somehow spending nearly every additional dollar they’ve made…many many millions each quarter), I grumbled something to myself about how it’s incredible they’re able to spend this much money.
However, after a little reflection I think this is exactly what I want them to be doing at this stage in the game. They aren’t calling it a victory that they’ve grown the share price from $12 to $50 in just a little over a year. They’re innovating, adding offerings, targeting new markets, and expanding everything they can. Unlike Arista, Square needs to spend a lot of money to do this. They’re becoming even more powerful than Arista because of all their optionality.
Check out adjusted revenue:
Mar17: up 39%
Jun17: up 41%
Sep17: up 45%
Dec17: up 47%
Holy acceleration, Batman!
Gross Payment Volume (GPV) has been fairly steady…actual decelerated ever so slightly:
Mar17: up 32%
Jun17: up 31%
Sep17: up 32%
Dec17: up 30%
That means all this revenue growth acceleration is coming from their high margin, largely recurring, subscription and services business. It’s not hard to see how, given this segment’s growth:
Mar17: up 106%
Jun17: up 99%
Sep17: up 84%
Dec17: up 96%
Pushing $80M/quarter, this segment is nearly 4x larger than it was 2 years ago. That’s Shopify-esque growth!
After reflecting, I’ve increased my position twice since earnings…even though this stock is NEVER cheap. I’m happy to align further with this company as they create more value to more customers in more ways…thus becoming more and more valuable as a company.
Plus, I have to support my new crush, Ms. Friar.