Square Reports 2019 Q3 Earnings

TL;DR – Another great report. Robust revenue and adj EBITDA growth, and strong evidence that innovation continues to fuel both SQ’s seller ecosystem and rapidly growing Cash app ecosystem. Shares trading up about 2.5% AH.

Quick glance at the quarter:

Revenue +44% YOY, Adj. rev. +40% YOY
Subscription rev. +68% YOY
GPV = $28.2B, +25% YOY
55% of rev. from larger sellers
Adj. EBITDA +85% YOY
Cash app rev. = $307M ($148M from bitcoin)

I’m most impressed by that strong adj EBITDA growth! The business model is really beginning to show its potential to be profitable:

In the third quarter of 2019, our Seller ecosystem generated $918 million of total net revenue and $364 million of gross profit, which increased 27% and 26% year over year, respectively. We have also maintained strong cohort economics with positive revenue retention, which has enabled us to drive toward an expected Adjusted EBITDA margin of nearly 30% for full year 2019. We have achieved these results while scaling both our Seller and Cash App ecosystems across new products and new markets, demonstrating the strength of our business model. Given this profitability, the significant market opportunity, and our efficient payback period of 3 to 4 quarters, we are increasing our investment in go-to-market initiatives to drive continued growth with attractive returns, some of which are outlined below.

Here’s a deeper look at the numbers we track…

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		1,170		1,266

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		563		602

Adjusted EBITDA (millions)			Q1		Q2		Q3		Q4
2016								13		12		30
2017						27		36		34		41
2018						36		68		71		81
2019						62		105		131

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)		(0.02)		0.06

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		0.21		0.25
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		26.8		28.2

Subscription and Services Rev (millions)	Q1		Q2		Q3		Q4
2016										 35		41
2017						49		59		 65		79
2018						97		134		166		194
2019						219		251		280

2019 Q3 Earnings:

Adjusted Revenue Growth (millions)
2018 Q3 TTM Revenue = 1,406
2019 Q3 TTM Revenue = 2,118
YOY TTM Adj Revenue Growth =50.6%, previous quarter 58%
*Remember adjusted revenue is what you want to look at, not total net revenue

EPS Growth (Adjusted)
2018 Q3 TTM Earnings = $0.40
2019 Q3 TTM Earnings = $0.71
YOY TTM EPS Growth = 77.5%, previous quarter 74%

Adjusted P/E (Check Current Price) = 80

Adjusted P/S ratio = ~14.1

Quick and dirty highlights:

Subscription and services-based revenue: $280M, +68% YOY

Square Capital: Loan volume 85K business loans for $563M, +39% YOY; average loan ~$6623.

Since inception in May 2014, SQ Capital facilitated approximately 885,000 loans totaling more than $5.5 billion.

Instant Deposit: No figure given, Instant Deposit for sellers was listed as a primary driver of growth for subscription and services-based revenue.

Cash App revenue reached total $307M, $159M excluding bitcoin, +115% YOY. Cash App’s ecosystem of differentiated products is growing, allowing customers to send, spend, store, and now invest money. Customers can buy fractional shares of stocks for as little as $1.00, with no commission fees. Additionally, after selling a stock, customers have immediate access to their funds, eliminating the uncertainty of when funds will be available for other spending.

Redesigned Cash App’s customer interface to make the broad portfolio of products more discoverable. This improved layout has driven increased product adoption of Bitcoin and Cash Card: First-time bitcoin buyers have approximately doubled and Cash Card orders have seen a meaningful uplift.

Bitcoin contributed $148M to revenue, $2M in gross profit, benefiting from increased volume as a result of Cash App redesign.

Cash Card: Meaningful uplift in orders due to app redesign

Cash Boost, the Cash Card’s rewards program, called out for increasing adoption and usage of Cash Card. Launched new Boost functionality for Cash Card customers: Location-based Boosts and Boosts that are enabled by customers meeting specific requirements (such as a certain number of Cash Card transactions).

Operating expenses: Non-GAAP operating expenses were $372M, +29% YOY, 29% of total revenue on non-GAAP basis

Cash/cash equivalents: $1.8B, +80M from previous quarter.

This was a good update on Square’s international efforts from the quarterly shareholder letter:

We are bringing more products to our markets outside the U.S. This quarter we launched Square Terminal in Australia, Canada, and the United Kingdom. There is strong product-market fit for Square Terminal in these regions because it provides a portable, all-in-one payments solution for dip and tap payments (which, unlike in the U.S., have been prevalent for years). In the third quarter, sales of Square Terminal outside the U.S. represented more than one-third of sales even though these are much smaller markets. Furthermore, PIN is the dominant form of authentication in these markets, and buyers can conduct the entire checkout process on Square Terminal without having to be at the checkout counter. For example, in many markets outside the U.S., tableside payments in restaurants are both common and expected by buyers. Additionally, we launched Square Loyalty in Canada and Australia as it provides sellers with an easyto-use tool to attract and retain customers.

Read the whole thing at https://s21.q4cdn.com/114365585/files/doc_financials/2019/Q3…


Long SQ
BlackLine (BL), MasterCard (MA), Ollie’s (OLLI), PayPal (PYPL), and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.


They flexed the earnings muscles I think to send a message they can be profitable, but have said for the second quarter in a row they will be upping the sales and marketing spend, so I would guess the expenses will be higher next Q and earnings lower. I think they have done this post Caviar to show the potential for at least one quarter and will go into heavy spending for growth now.

Square is a very data driven company, and I really like that. They are in a position to collect the marketing data and have been transparent on the payback of the most doubted of advertising the “awareness” campaign. They have said the payback is 3-4 quarters, quite impressive.

There are a lot of distractions when following this company. Dorsey can be weird. Bitcoin. Fractional Stocks. I wondered why Bitcoin and Stock purchases. Now I believe these are more good strategy calls by Dorsey. These things bring more assets under SQ umbrella. It encourages people to keep money in the ecosystem. I also happen to believe Bitcoin will continue to grow in popularity and being a leader in this space will be very valuable.

One more thing about the cash card, this is growing nicely and the “Boost” marketing and promotion I think will be a great driver of growth. There is a paragraph in the letter that mentions location based promotions. This is not being talked about, but at one time was a very hyped and sought after marketing capability.



Concerned at all that they had a letter from the SEC and are not going to be reporting adjusted revenue or using it as a measure anymore? It looks like no big deal because they are still going to give the transaction and bitcoin costs so adjusted revenue can be calculated. Gross profit might be a better measure anyway with all the different moving pieces at different gross margins.



Concerned at all that they had a letter from the SEC and are not going to be reporting adjusted revenue or using it as a measure anymore?

I meant to include that in my original post, Jimbo, so I’m glad you brought it up. Honestly, I’m not concerned, just think it’s silly the SEC was giving them a hard time on this. Here’s some comments from the conference call on this matter:

Additionally, as discussed in the shareholder letter, we will be discontinuing the use of adjusted revenue beginning next quarter, following receipt of a comment letter from and discussions with the SEC. As background, we introduced adjusted revenue in November 2015 as a supplemental non-GAAP metric for investors to measure our business performance and growth, and provide greater comparability to other payment solution providers. Additionally, management uses adjusted revenue internally to measure the performance of our business.

Going forward, our statement of operations will continue to disclose total net revenue, transaction-based cost and bitcoin costs, determined in accordance with GAAP, which are the key components of adjusted revenue. We are also introducing new guidance measures this quarter on GAAP gross profit, as well as some of transaction-based cost and bitcoin costs.

Square posted an FAQ to its IR site related to the change if you want more info: https://s21.q4cdn.com/114365585/files/doc_financials/2019/Q3…

In the FAQ it explains it will be using gross profit going forward. I’ll provide that in the future updates.

Long SQ
BlackLine (BL), MasterCard (MA), Ollie’s (OLLI), PayPal (PYPL), and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.