Square Inc (NYSE:SQ) may share a CEO in common with Twitter Inc (NYSE:TWTR), but that’s where the similarities end … at least this month, anyway. TWTR stock has been pelted by more than 20%, but SQ stock is nearing breakeven thanks to a solid move higher on better-than-expected earnings.
Square — that other company Jack Dorsey runs — didn’t swing to a profit, but its loss of 9 cents per share did beat out the Street consensus by 2 cents.
What’s more, revenues of $439 million beat expectations for $430.1 million, rising 32% year over year, and SQ raised its full-year guidance.
Let’s take a look.
Square Earnings Rundown
Square saw gross payment volume, a key metric of health, rise 39% YOY to $13.2 billion, complemented by a 70% increase in its cash advance and loan segment, Square Capital. Growth at Square Capital, however, slowed from last year’s 123% YOY rate.
Compare that to PayPal Holdings Inc (NASDAQ:PYPL), which saw its total payment volume increase 25% YoY, but reported $87.4 billion in TPV.
Square’s revenue was helped by Starbucks Corporation (NASDAQ:SBUX), a collaboration which CNN Money dubbed a “giant money loser” back in 2015. Square since renegotiated its processing rates with SBUX, leading to transaction revenue of $7 million and transaction profit of $3 million for Starbucks:
“Starbucks’ transition off of our infrastructure is nearly complete, and we expect to see only nominal revenue and transaction profit related to Starbucks in the fourth quarter.”
Backing out Starbucks’ contribution, adjusted sales were $178 million for Q3, an increase of 51% over the year-ago quarter. Adjusted revenue for the fourth quarter, SQ states, will fall in the range of $182 million to $185 million, with total net revenue for Q4 between $438 million and $443 million.
Square’s food delivery business, Caviar, a company it acquired in August 2014, was suspiciously absent from its earnings report. What was noted, though, was that Caviar contributed to SQ’s 140% increase in its software and data product revenue, and that weekly order volume is up more than 11 times since its acquisition.
Bottom Line on SQ Stock
Square stock has since tapered off to a 3% gain as of this writing, but the positive move on an otherwise down day in the markets is bullish, especially on more than four times the usual volume.
SQ stock is now within 13% of its consensus price target of $13, and with 14 of the 24 analysts covering the stock rating it a “hold,” it’s likely to see upgrades in the following days. Sure enough,
Credit Suisse lifted its price target on SQ from $12 to $15, a gain of 31% from here, and slapped shares with an “outperform” rating:
“We continue to like Square for its exposure to strong secular tailwinds including not only payments electrification, but payments simplification. … We believe Square’s years of product investment and brand building put it ahead of the competition for integrated small business payments solutions.”
The analysts expect SQ stock to sustain volume growth of 20% to the mid-30s%.
Square is hardly “fixed,” but it at least appears to be pointed in the right direction.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
