SQ was a name that was followed by many on this board in the past. The past 18 months has been tough for the firm and its shareholders. The latest earnings release suggests SQ has turned the corner, driven by its huge success in CASH APP, its digital payment system.
Highlights of the Q4 2019 earnings release:
“In the fourth quarter of 2019, we continued to generate strong revenue growth at scale and invested in our business to drive long-term growth. These investments are intended to further our purpose of economic empowerment in serving both businesses and individuals. Total net revenue grew 41% year over year to $1.31 billion, and gross profit grew 39% year over year to $527 million. Excluding Caviar, total net revenue grew 46% year over year to $1.30 billion, and gross profit grew 42% year over year to $523 million. Net income was $391 million, and excluding the gain on sale from the Caviar transaction, net income was $17 million. Adjusted EBITDA was $119 million, up 46% year over year.”
“For the full year of 2019, total net revenue grew 43% year over year to $4.71 billion, and gross profit grew 45% year over year to $1.89 billion. Excluding Caviar, total net revenue grew 45% year over year to $4.57 billion, and gross profit grew 46% year over year to $1.85 billion. Our Seller ecosystem generated $3.46 billion in total net revenue,1 up 27% year over year, and $1.39 billion in gross profit, up 30% year over year. Cash App generated $1.11 billion in total net revenue, up 157% year over year, and $458 million in gross profit, up 135% year over year.”
"We see significant opportunity ahead to drive growth for our Seller and Cash App ecosystems and will continue to invest where we see attractive returns. Our guidance for the full year of 2020 reflects strong revenue and gross profit growth and, as we outlined at the time of the transaction, we are using the operational capacity unlocked by the Caviar transaction to reinvest into our two ecosystems.
As a reminder, the first quarter is typically our slowest in terms of sequential gross profit growth due to seasonality, driven primarily by our Seller business. Additionally, our operating expense base will increase in the first quarter as we invest in growth opportunities."
For Q1 2020, the company is guiding total rev of 1.35B - 1.36B, representing 40% rev growth. Using the mid value of 1.35B and factoring in an expected ~3% beat on rev. (based on historical average), I calculated a growth rate 45% for Q1 2020. For 2020 year, SQ is guiding 5.9B - 5.96 B versus consensus 5.61B. SunTrust Robinson Humphrey analyst Andrew Jeffrey is estimating a conservative 46% growth in 2020. I will not be surprised to see the 2020 growth in low 50%.