Square reports 2019 Q1 earnings

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)

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.

Phoenix 1 Contributor
BlackLine (BL), MasterCard (MA), PayPal (PYPL), and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx


Thanks Matt!

Short little story here. So a year ago I took my kitty to a groomer way out in the boonies. She’s pretty much the only groomer who will touch a cat in my area and she works in a building on the same property as her home. Anyway, at that time I noticed she was using a Square device on her phone which I thought was nice since I own shares. Well, fast forward to today when I took the same kitty back to her, she now has the Square register (with the screen and all) so she’s upgraded!



Just crunching some numbers…

Square posted a gross profit of 1.303 billion in 2018, according to their annual report.
They posted adjusted revenue of 1.587 billion according to the chart in this post.

So looking at adjusted revenue, their gross margin in 2018 was 82%. That’s extraordinary!
Q/Q, in their latest quarter, they grew adjusted revenue 59%. That’s up there with the fastest growers followed here.

On an adjusted revenue basis, they are selling at a p/s ratio of 18.39, looking at 2018 revenue and at a p/s ratio of 16.5 factoring in the latest quarter. That’s one of the cheapest p/s ratios out there in the hyper growth realm.

So if we are looking at adjusted revenue, which in square’s case is the important metric, we have.

  1. Hyper growth close to 60%
  2. Huge gross margins at 82%
  3. Cheap valuation relative to the comparable growth cohort.
  4. A massive market opportunity

Someone tell me why Square isn’t a screaming buy…

I think some people are looking at square and thinking its gross margin is relatively low. But if you back out pass through revenue from ALL of the metrics, a different story is being told.