Square June Quarter: More Wow.

My one word review in March was “Wow.” This quarter, even more so. Check out what they’re doing!

Adjusted revenue continues to accelerate:
Mar17: up 39%
Jun17: up 41%
Sep17: up 45%
Dec17: up 47%
Mar18: up 50%
Jun18: up 60% Incredible.

Gross Payment Volume (GPV) growth basically holds steady:
Mar17: up 32%
Jun17: up 31%
Sep17: up 32%
Dec17: up 30%
Mar18: up 31%
Jun18: up 30%

Revenue from payment transactions is (still) the majority of revenue for SQ. It’s growing at around 30%. What this means is that almost all the revenue growth acceleration is coming from their high margin, largely recurring, subscription and services business!

Subscription Revenue continues to explode:
Mar17: up 106%
Jun17: up 99%
Sep17: up 84%
Dec17: up 96%
Mar18: up 98%
Jun18: up 127% WHAT!?

The TTM revenue of this subscription business alone is over $375M. That’s bigger than ALL the revenue of many companies we follow, and it just grew 127% YoY. I’m floored.

Lastly, Q3 Adj Revenue guidance was for 59% growth – which you know they’ll beat – so we have more acceleration to come!

Conclusion: Even after this dazzling quarter, Square is down a buck or two in after hours trading. I picked up some more shares. This story isn’t even beginning to slow down.

Thanks, Sarah.



That is an incredible quarter. I can’t believe the after hours price is slightly down. I went through in moderate detail and on first glance nothing seems amiss. Maybe people are unhappy because bitcoin revenue is down. Honestly who cares, that was never part of the story for me. This was a huge huge quarter. I too picked up shares.


SQ shareholder letter


Agreed: Great quarter! Here’s a look at the numbers:

Total Net Revenue (millions)			Q1		Q2		Q3		Q4	
2014												250
2015						374		310		332		374
2016						379		438		439		452
2017						462		552		585		616
2018						669		815

Adjusted Revenue (millions)			Q1		Q2		Q3		Q4
2014												82
2015						89		111		118		135
2016						146		171		178		192
2017						204		240		257		283
2018						307		385

Adjusted EBITDA (millions)			Q1		Q2		Q3		Q4
2016								13		12		30
2017						27		36		34		41
2018						36		68

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)		(0.04)
2018						(0.06)		(0.01)

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		0.08
2018						0.06		0.13
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		17.9
2018						17.8		21.4

Subscription and Services Rev (millions)	Q1		Q2		Q3		Q4
2016										35		41
2017						49		59		65		79
2018						97		134

2018 Q2 Earnings:

Adjusted Revenue Growth (millions)
2017 Q2 TTM Revenue = 814
2018 Q2 TTM Revenue = 1232
YOY TTM Adj Revenue Growth = 51.4%, previous quarter 45.9%
*Remember adjusted revenue is what you want to look at, not total net revenue, for Square

EPS Growth (GAAP - diluted)
2017 Q2 TTM Earnings = ($0.21)
2018 Q2 TTM Earnings = ($0.15)

EPS Growth (Adjusted)
2017 Q2 TTM Earnings = $0.18
2018 Q2 TTM Earnings = $0.34
YOY TTM EPS Growth = 89%, previous quarter 115%

Adjusted P/E (Check Current Price) = 66.86/0.34 = 197 (Yes, I know this is a ridiculous metric to track right now)

Other quick and dirty highlights:

Subscription and services-based revenue: $134M, +127% YOY and +38% sequentially
Square Capital: Loan volume +22% YOY, 60K business loans for $390M - Growth is slowing down here. Losses were again below 0.1% (~$18M) reflecting investments in risk management.
Instant Deposit: $4B volume this quarter. First time I remember getting a figure for this metric. Benefited from sellers and Cash App users.
Caviar: Revenue growing rapidly, doubled YOY
Take rate revenue: 2.93% - flat sequentially
Take rate profit: 1.08% - up 4 basis points YOY, down 1 basis point sequentially
Cash app: #1 domestic finance app in Q2. Have not seen an update on active users since 2017 Q4 when it was 7M.
Cash App Cash Card: In June alone, payment volume was $250B, triple that of December 2017 payment volume.
Operating expenses: Non-GAAP operating expenses were $318M, up 46% YOY, accounting for 65% of Adjusted Revenue.
Cash/cash equivalents: $1.8B, previous quarter $1.2B. Completed offering for $862.5M in convertible senior notes.

Updated 2018 Full Year Guidance
Adj. Revenue: $1.52B to $1.54B, 55% YOY growth at midpoint
Adj. EBITDA: $240M to $250M
GAAP EPS: ($0.21) to ($0.17)
Adj. EPS: $0.42 to $0.46

Quick takeaway: I need to go through the numbers more, I’ve only given them a quick glance. But expenses seem to be rising fast, but not as fast as adj. revenue. Subscription and services-based revenue category is on fire - as Bear aptly noted above. The services Square bundles in this revenue stream are company’s biggest differentiator. Large sellers are moving to Square for its ecosystem, not its payment processing services. Though, we also need to point out, SQ’s specialized point-of-sale solutions for different types of businesses – and their ease of use and installation – might be beginning to make big difference too. From the shareholder letter:

Square for Restaurants, together with Square Appointments and Square for Retail, rounds out our industry-specific point-of-sale offerings for food, services, and retail—industries that together represent approximately 85% of our GPV. With Square for Restaurants, we are now able to meet the needs of full-service restaurants (FSRs), which represent a total addressable market of over 300,000 restaurants that generate nearly $200 billion in annual gross receipts in the U.S.¹ The average annualized GPV of a Square for Restaurants seller is more than $650,000, demonstrating that the product resonates with larger sellers.

FSRs are busy and have complex needs—Square brings speed and ease of use to the restaurant point of sale, making it easy for servers to delight diners while managing tables, orders, courses, and tickets. “Back of the house” functionality, such as revenue and cost reporting, enables managers and owners to make informed decisions and run an efficient business. Speed and ease of use also extend to the onboarding and customization process: While most restaurant points of sale require assisted implementation, to date more than 60% of Square for Restaurants sellers have selfonboarded. Additionally, we are enabling restaurants to manage an omnichannel business. Square is the only company that provides both the point of sale and the food delivery and pickup platform, and we are integrating Caviar with Square for Restaurants.

Again, that’s just a quick takeaway. I’ll have more after I get a chance to go through the company’s conference call this weekend.

Long SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx


Ethan… this might have something to do with them being down after hours…

For the third quarter, Square said to expect $407 million to $412 million in adjusted revenue and 8 cents to 10 cents a share in adjusted EPS. Analysts were expecting 13 cents in adjusted EPS.

I added yesterday thinking that we would see some reasonable gains after hours… however there is always tomorrow and the next day, week, year after that until the story changes.

Go figure… Elan Musk apologises for his behaviour. Figures disappointing to say the least…but he stated they would start to become profitable from the next qtr onwards??? And they are/were(the last time I looked)up 11% after hours!