Square Reports 2018 Q3 Earnings

Shares are down about 3% in AH trading. From the shareholder letter:

In the third quarter of 2018, we continued to drive strong revenue growth at scale. Total net revenue was $882 million, up 51% year over year, and Adjusted Revenue was $431 million, up 68% year over year. Excluding the acquisitions of Weebly and Zesty, total net revenue and Adjusted Revenue grew 46% and 56% year over year, respectively, which represents an acceleration compared to the prior quarter. Gross Payment Volume (GPV) was $22.5 billion, up 29% year over year.

Read the whole thing at https://s21.q4cdn.com/114365585/files/doc_financials/2018/20…

Here’s a quick look at the numbers, have only skimmed the letter:

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		882

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		431

Adjusted EBITDA (millions)			Q1		Q2		Q3		Q4
2016								13		12		30
2017						27		36		34		41
2018						36		68		71

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)		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		0.08
2018						0.06		0.13		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		22.5

Subscription and Services Rev (millions)	Q1		Q2		Q3		Q4
2016										 35		41
2017						49		59		 65		79
2018						97		134		166

2018 Q3 Earnings:

Adjusted Revenue Growth (millions)
2017 Q3 TTM Revenue = $893
2018 Q3 TTM Revenue = $1,406
YOY TTM Adj Revenue Growth =57.4%, previous quarter 51.4%
*Remember adjusted revenue is what you want to look at, not total net revenue, for Square

EPS Growth (Adjusted)
2017 Q3 TTM Earnings = $0.24
2018 Q3 TTM Earnings = $0.40
YOY TTM EPS Growth = 67%, previous quarter 89%

Other quick and dirty highlights:

Subscription and services-based revenue: $166M, +155% YOY; excluding Weebly and Zesty acquisitions it was $141M, +117% YOY
Square Capital: Loan volume +34% YOY, 62K business loans for $405M
Transaction/loan losses were again below 0.1% (~$24M) reflecting investments in risk management.
Instant Deposit: No figure given this quarter. In Q2, Instant Deposit volume was approx… $4B.
Caviar: No indication given
Take rate revenue: 2.91% - down 2 basis points sequentially
Take rate profit: 1.07% - down 1 basis point sequentially
Cash app: No new info
Cash App Cash Card: One of primary drivers of subscription and services-based revenue growth
Operating expenses: Non-GAAP operating expenses were $363M, up 55% YOY, accounting for 67% of Adjusted Revenue.
Cash/cash equivalents: $1.8B, previous quarter $1.8B.

Most of the letter focuses on how Square is appealing to more sellers with:

*Square Terminal, a portable, all-in-one payments device to replace traditional keypad terminals.

Square Terminal expands our addressable market to serve new sellers and new use cases. It is ideal for sellers with crowded countertops, such as doctors’ offices, dry cleaners, and the much-beloved bodegas (i.e., corner stores). The compact size and portability of Square Terminal enable the seller to also meet the buyer beyond the countertop— customers on the sales floor in a distributed retail environment, patients in a physician’s treatment room, or diners at their table in a restaurant. We see a significant market opportunity for Square Terminal, as there are nearly two million standalone payment terminal devices in the U.S. alone.

*Square Reader SDK - Enables sellers to use Square hardware with customized point of sale solutions

Developers use Square Reader SDK to integrate Square hardware with a seller’s custom point of sale, allowing them to build unique checkout experiences such as self-ordering kiosks and line-busting apps. This SDK enables developers to build a seamless payment experience with no switching between the seller’s point of sale and Square’s payment flow.

*Square Installment - purchase financing product, sellers can offer their buyers the option to split large purchases into fixed monthly payments.

Square Installments is a strong fit for many of our sellers and their buyers. In the third quarter of 2018, Square processed over 10 million transactions greater than $250 in the U.S. alone. These purchases are often for products that have a long, useful life, such as furniture, auto repairs, or home renovations, and many buyers seek payment flexibility: 76% of individuals believe financing options help them effectively manage their budget.Âł Buyers apply online for Square Installments in just a few steps by providing identity and financial information, and see the total cost of borrowing before completing the purchase. Buyers receive a response in real time, and once approved, they can use Installments anywhere the seller accepts payments with Square: in Square Point of Sale, Square Invoices, or on their website.

That’s all I’ve got for now. Will report back once I’ve gone through the conference call.

Long SQ
Intuit (INTU), MasterCard (MA), PayPal (PYPL), and Square (SQ) Ticker Guide
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Added comment: Short read by Daniel Sparks on TMF

Nov 8 2018

Square Earnings Highlight Mind-Boggling Growth


SQ down almost 10% today after yesterday’s ER. I am trying to understand the dynamic.

  1. Top line growth looks robust. Adj Rev grew 68% w/ acquisitions or 58% without. Subscription/Service grew even more impressively at 156% with and 117% w/o acquisitions

  2. Adj Margin may seem to be the concern. It was projected to be around 19% back in Q4 2017 and Q1 2018, now updated to be 16%

  3. 2019 Outlook is considered not to be so flashy. Adj rev +40% growth and similar margin expansion (2 points).
    Now is the top line growth sandbagged? If we look back at their 2018 full year projection in Q4 2017 Shareholders Letter, Adj Rev was $1.3-$1.33B or 34% growth. Now updated to 60%. So I assume their 2019 top line growth might be bit conservative
    2 points margin expansion: They continue to indicate top line greenfield growth with financial disciplines. Maybe we just need to be patient on this regard.


Their earnings forecast for next q is below consensus.



Concerns re SQ Installment:

“So from an Installments perspective it’s very analogous to what we do with Square Capital with the sellers. our long-term strategy there making use of third-party investors to make sure we true scale that off of our balance sheet” -Sara

I remember reading last CC where Jack commented that they’d like to test it out and see how it works before expanding the program and offloading to 3rd party investors.