TL;DR: Square turns in excellent quarter, shares are down ~ 6% in AH trading. And that might not even be an irrational move for a market focused on the short-term. Square’s steep valuation is real. But the long-term thesis is very intact IMHO.
Let’s take 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 669 815 882 933 2019 959 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 307 385 431 464 2019 489 Adjusted EBITDA (millions) Q1 Q2 Q3 Q4 2016 13 12 30 2017 27 36 34 41 2018 36 68 71 81 2019 62 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 (0.07) 2019 (0.09) 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 0.14 2019 0.11 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 23.0 2019 22.6 Subscription and Services Rev (millions) Q1 Q2 Q3 Q4 2016 35 41 2017 49 59 65 79 2018 97 134 166 194 2019 219
2019 Q1 Earnings:
Adjusted Revenue Growth (millions)
2018 Q1 TTM Revenue = 1,087
2019 Q1 TTM Revenue = 1,769
YOY TTM Adj Revenue Growth = 62.7%, previous quarter 61.3%
*Remember adjusted revenue is what you want to look at, not total net revenue, for Square
EPS Growth (GAAP - diluted)
2018 Q1 TTM Earnings = ($0.18)
2019 Q1 TTM Earnings = ($0.13)
YOY TTM EPS Growth = NA
EPS Growth (Adjusted)
2018 Q1 TTM Earnings = $0.28
2019 Q1 TTM Earnings = $0.51
YOY TTM EPS Growth = 82%, previous quarter 70.4%
Adjusted P/E (Check Current Price) = 73.62/0.51 = 144.4
Adjusted P/S ratio = ~17.5
Other quick and dirty highlights:
Subscription and services-based revenue: $219M, +126% YOY; excluding Weebly and Zesty acquisitions it was $191M, +97% YOY
Square Capital: Loan volume 70K business loans for $508M, +50% YOY
Instant Deposit: No figure given this quarter, listed as a primary driver of growth for subscription and services-based revenue.
Caviar: No figure given this quarter, listed as a primary driver of growth for subscription and services-based revenue.
Cash App volume up 2.5x YOY, listed as a primary driver of growth for subscription and services-based revenue.
Cash Card: No figure given this quarter, no figures given but “continued to grow the number of monthly active Cash Card customers and saw an increase in transaction frequency per customer”
Operating expenses: Non-GAAP operating expenses were $419M, up 52% YOY
Cash/cash equivalents: $1.6B, same as previous quarter.
Quick takeaway: I know I probably sound like a broken record every quarter, but this is all about the ecosystem Square is developing (same w/Shopify BTW). Square’s ecosystem grows wider and deeper every quarter, making it harder and harder for the merchants on its platform to leave. We could go on and on about Instant Deposit, Square Capital, Cash App, Caviar, etc. As a nice side dish, we have int’l expansion, but that’s of secondary importance at this moment in time.
This quarter, Square revamped its online store. From the shareholder letter:
Customers are used to buying in person, on their computers, and on their phones, and Square provides sellers with the tools they need to offer a seamless experience across these channels. We integrated Weebly technology with Square to create a feature-rich, self-serve website builder that helps sellers create a custom online store. Square Online Store gives buyers more options, including the ability to purchase online and then pick up in store (a feature typically only available through enterprise sellers), as well as shoppable Instagram galleries.
Square Online Store makes it easy for sellers to expand their business: Approximately 70% of Square Online Store sellers used Square before adding online sales. The new Square Online Store automatically syncs items, orders, inventory, prices, and data across online and in-person sales, providing sellers with a real-time view of their entire business. Square Online Store also provides features for food and drink sellers to offer seamless online ordering from their own website, customized pickup times across multiple locations, and the option to easily pay ahead for online orders.
Read the whole thing at https://s21.q4cdn.com/114365585/files/doc_financials/2019/Q1…
Square also launched a dedicated mobile app for Square Invoices this quarter. Square Invoices has
more than 350,000 active sellers, with over $5 billion in GPV processed in the last 12 months. Sellers who use SQ invoices typically get paid in 1 day, while most small businesses wait an average of 21 days to get paid (not sure how apples-to-apples that stat is, but still…).
I’m not selling, as my thesis for SQ remains fully intact. If you follow Saul’s style of holding a concentrated portfolio of nothing but the most hyper-growth stocks, I suppose I could see some selling. But I am more than happy holding and, if a dip is substantial, would consider adding. Just remember, we are still talking about a company growing adj rev by 59%, and just raised its full-year rev growth guidance to 43%. I would not be surprised if that target gets raised again next quarter, as SQ is apt to do.
JMHO. YMMV. Be back after conf call with more notes.
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