Square reports Q4 rev & EPS beats

Great report from SQ today, and they appear to be getting an ~8% pop right now.


In the post linked above, it was mentioned that operating margins improved from 26% in 2014 to 31% in mid-2016. In the Dec 2016 quarter OM hit 37% (operating profit was up 11% sequentially!). OM came in at 33.7% for 2016. That’s some rapid margin expansion.

One cause for such margin expansion is the software unit. This quarter it was up to 40.5M of revenue, up to 21% of the 192M in adjusted revenue SQ reported for the quarter. Let’s look back to what I pointed out from the Sep quarter:

But more than anything check out the software segment growth. From 14,694,000 in the Sep quarter of 2015 to 35,320,000 in the Sep16 quarter. 140% growth. And software moved from ~12% to ~20% of adjusted revenue in the same time frame. That’s where the profit is. That’s the number to focus on. If that keeps growing for quarters and quarters to come, Square is an absolute steal right now.

Well it’s only been one quarter, but it’s still growing. In Q4 software (now called “subscription and services”) revenue was up 15% SEQUENTIALLY, and was up 81% over the Dec quarter of 2015.

They also decreased operating expenses sequentially from 182.3M in the Sep quarter to 180.5M in the Dec quarter.

Just an all around fantastic quarter.



I don’t want to brag but I hope I can express happiness in my growing abilities as an investor/analyst (many…maybe most…of them thanks to the community around this board and Saul’s example). The one thing I wasn’t 100% sure about on Square was CFFO. It was actually 42M for the 9 months ending September 2016, but only 23M for the 12 months ending December 2016. I was concerned at first, but then I realized this was a product of the loans they’re now involved in. I literally reasoned, “Nobody evaluates banks based on CFFO.” I wish I had mentioned this in my Dec quarter summary, but to be honest I was a little unsure. Should have asked the board.

But anyway, I got confirmation today from our friend Mr Hochfeld:

Because this company does have some aspects of a financial institution, as well as elements of an operating software company, many different accounts wash through the CFFO calculation that are not easy to forecast. It seems likely that adjusted EBITDA is going to come closest to CFFO over the course of a full year. Adjusted EBIDA is forecast to grow by $65-$75 million next year. That suggests that operating cash flow could be in the range of about $100 million for the period, although there are many balance sheet items that really cannot be forecasted with any precision a year in advance.

Anyway, I was pleased. I have learned so much about investing since I found this board. Thanks to all for being a part of this community.

very happy SQ investor

PS – also really enjoyed Bert’s gushings here:

One reader of a prior piece I wrote asked me what kind of technology company delivers food? Just like there is technology in dispatching taxis and optimizing fares, there is technology in delivering restaurant meals. But the real strategy behind Caviar… the kind this company offers and not the kind one eats with a little mother of pearl spoons, is that Caviar customers are likely to use SQ to process payments. And they could use SQ services to convert credit card billings to immediate cash flow or they could use Square Capital to buy a piece of capital equipment. They may use SQ to analyze which menu items sell and which don’t. They could use SQ for their payroll processing and they could use specific restaurant applications that run on the Square platform which do things such as ordering provisions, take reservations and print bills to present to customers. It is the integration and the multiple services that SQ offers that is the key to Caviar being a fast growing and profitable service for the company.

I think that the results of the past quarter are additional evidence that the strategy is working well and will produce significant growth and be profitable in the years ahead. This why I think that the shares are still a buy in the wake of the sharp share price appreciation seen after the earnings call.


Nice note Bear - this board and the world is a happier place with smart and kind folks like you paying compliments like yours.