SQ Reports 2017 Q3 Earnings

Beat analysts’ expectations, raised guidance, numbers look good all around, down about 1.5% in AH trading.

Square Inc. reported earnings that exceeded analysts’ expectations and raised its full-year forecast, bolstered by larger merchants that are increasingly using its platform for payment transactions and buying business software services.

Adjusted revenue rose 45 percent to $257 million in the third quarter, compared with the average estimate of $245.3 million. The San Francisco-based company processed $17.4 billion in gross payment volume, an increase of 31 percent from a year before and more than analysts’ anticipated.

Square shares have more than tripled in the past year as investors see value in its all-in-one hardware products for small and medium-sized businesses. In addition to processing payments, Square has been adding services – like employee and inventory management – that make running a company easier. Square’s merchant-lending businesses has also grown rapidly, and those higher-margin services have been contributing a growing share of revenue, offsetting the slowdown in payments transaction growth.

Read more at https://www.bloomberg.com/news/articles/2017-11-08/square-be…

A little excerpt from the shareholder letter:

Total net revenue was $585 million in the third quarter of 2017, up 33% year over year. This compares to 26% year-over-year growth in the second quarter of 2017. Excluding Starbucks revenue from prior periods, total net revenue grew 36% year over year in both the second and third quarters of 2017. Adjusted Revenue was $257 million, up 45% year over year, an acceleration from 41% year-over-year growth in the second quarter of 2017.

Transaction-based revenue was $510 million in the quarter, up 31% year over year. Transaction-based revenue as a percentage of GPV was 2.93%, flat compared to the third quarter of 2016. Transaction-based profit as a percentage of GPV was 1.05% in the third quarter of 2017, up from 1.01% in the third quarter of 2016. Strong growth in Invoices, Virtual Terminal, and E-Commerce API payments, which all have higher rates than our card-present transactions, as well as improvements in our transaction cost profile, offset the impact from custom pricing for certain larger sellers.

Subscription and services-based revenue was $65 million in the third quarter of 2017, up 84% year over year. Instant Deposit, Caviar, and Square Capital contributed the majority of subscription and services-based revenue. Specifically, Instant Deposit volume of $2 billion in the third quarter benefited from increased usage by Square sellers and Cash app individuals, both of whom value speed to access their funds. Square Capital facilitated 47,000 business loans totaling $303 million, up 45% year overyear.

And a look at the numbers:

Total Net Revenue (millions)	Q1		Q2		Q3		Q4	
2014										250
2015				374		310		332		374
2016				379		438		439		451
2017				462		552		585		

Adjusted Revenue (millions)	Q1		Q2		Q3		Q4
2014										82
2015				89		111		118		135
2016				146		171		178		192
2017				204		240		257	

EPS (diluted) 			Q1		Q2		Q3		Q4	
2014										(0.25)	
2015				(0.34)		(0.20)		(0.35)		(0.34)
2016				(0.29)		(0.08)		(0.09)		(0.04)
2017				(0.04)		(0.04)		(0.04)

EPS (Adjusted)			Q1		Q2		Q3		Q4
2015										(0.05)
2016				(0.05)		0.02		0.01		0.05
2017				0.05		0.07		0.07
GPV (billions)			Q1		Q2		Q3		Q4
2015				7.1		8.8		9.5		10.2
2016				10.3		12.5		13.2		13.7
2017				13.6		16.4		17.4

2017 Q3 Earnings:

Adjusted Revenue Growth (millions)
2016 Q3 TTM Revenue = 630
2017 Q3 TTM Revenue = 893
YOY TTM Adj Revenue Growth = 41.7%, previous quarter 43%
*Remember adjusted revenue is what you want to look at, not total net revenue, for Square

EPS Growth (GAAP - diluted)
2016 Q3 TTM Earnings = (0.80)
2017 Q3 TTM Earnings = (0.16)

EPS Growth (Adjusted)
2016 Q3 TTM Earnings = (0.07)
2017 Q3 TTM Earnings = 0.24

Adjusted P/E (Check Current Price) = 36.71/0.24 = 153

Other quick and dirty highlights:

Square Capital: Loan volume +45% YOY, 47K business loans for $303M - Note these numbers are down sequentially
Instant Deposit: $2B volume, increased usage by sellers and Cash app users
Take rate: 2.93%
Subscription and services-based revenue: $65M, +84% YOY
Virtual Terminal: Fastest SQ product to reach cumulative $1B GPV, $350M came this quarter, 75% of volume rom sellers that use Virtual Terminal as primary processing from SQ. This means SQ is starting to see traction with e-commerce business!
Cash/cash equivalents: $1.1B, previous quarter $1.1B

Long SQ
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