Square Reports 2017 Q2 Earnings

Shares seem to be basically flat in AH trading, so we’ll see what tomorrow brings. But, at first glance, it looks like another really strong quarter. The shareholder letter begins by talking a lot about Square Capital, Square’s loan platform for small businesses:

In the second quarter, our top-line results reflect our continued ability to attract larger sellers and increase product usage through cross-selling. Total GPV grew 32% year over year, and GPV from larger sellers grew 45% year over year. Transaction-based revenue increased 32% year over year — the same rate as GPV, which is a result of our ability to maintain transaction revenue margin. Subscription and services-based revenue nearly doubled year over year. Strong top-line growth, lower risk loss rates, and ongoing operating expense leverage drove another quarter of significant EBITDA and margin improvement.

We grew Square Capital loan volume 68% year over year and further diversified our investor base.

In the second quarter, Square Capital facilitated over 49,000 business loans totaling $318 million, an increase of 68% year over year. We are further expanding access to financing by adding tools to the Square Capital product suite that help our sellers grow their businesses. In June, we launched a pilot of Square Installments, an integration with Square Invoices that allows a seller’s customers to finance large purchases over the course of several months. Typically, only larger businesses have the ability to offer purchase financing—Square Installments provides smaller businesses access to this growth tool as well.

The shareholder letter is available for download on Square’s IR page ( https://squareup.com/about/investors ).

Here are the numbers I track:

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

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

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)

EPS (Adjusted)			Q1		Q2		Q3		Q4
2015										(0.05)
2016				(0.05)		0.02		0.01		0.05
2017				0.05		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

2017 Q2 Earnings:

Adjusted Revenue Growth (millions)
2016 Q2 TTM Revenue = 570
2017 Q2 TTM Revenue = 814
YOY TTM Adj Revenue Growth = 43%, previous quarter 46%
*Remember adjusted revenue is what you want to look at, not total net revenue, for Square

EPS Growth (GAAP - diluted)
2016 Q2 TTM Earnings = - 1.06
2017 Q2 TTM Earnings = -0.21

EPS Growth (Adjusted)
2016 Q2 TTM Earnings = NA
2017 Q2 TTM Earnings = 0.18

Adjusted P/E (Check Current Price) = 26.46/0.18 = 147

Other quick and dirty highlights:
Square Capital: Loan volume +68% YOY, 49K business loans for $318M
90M customer profiles with associated email or phone #s, data used to build CRM tools
Take rate: 2.94% (once again pretty good!)
Subscription and services-based revenue: $59M, +99% YOY
Cash/cash equivalents: $1.1B, previous quarter $990M

I’ll be back in a day or two (hopefully) to share notes from the conference call.

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


Shares seem to be basically flat in AH trading, so we’ll see what tomorrow brings. But, at first glance, it looks like another really strong quarter.

So strong. Revenue growth accelerated yet again, as subscription & services revenue (which grew an insane 99% YoY) creeps up as a percentage of the whole.

I guess we just have to trust their spending is needed and will be fruitful. I was a little bit disappointed they increased Op Ex almost 15% SEQUENTIALLY…which is huge. They spent 10M more on sales, 10M more on R&D, and another 10+ on other stuff. Just a huge increase. They chose to do this instead of dropping actual GAAP profit to the bottom line…I don’t say this to gripe, because I’m sure they know what they’re doing, but I hope someone asks about it in the CC (haven’t read it yet).

Thanks as always, Matt. These write ups are awesome.



Yeh good job Matt (and Bear).
I like this - has maintained mega growth and now has crossed into profitability. Good - one more growth stock I need to worry less about on the pre-breakeven earnings front.