Square Transaction Margins Appear Slim But Not A Worry

Mobile payment company Square‘s transaction margins, which make up most of the company’s revenue, appear slim. That’s according to a report by The Motley Fool, which said that, while the margins are “pretty slim,” it’s not something investors need to worry about. The company, according to the report, has other high-margin offerings that will more than make up for the transaction margins.

While most people use Square when purchasing something at a local store or farmer’s market, on the seller side, Square has a robust offering that it has been building out. Take Square Capital as one example. Square has access to a lot of sales data for small businesses since they are processing all the business’ transactions. With that insight, it can see when a small business has slow periods, when business is booking and when days are bad. They can then use all that data to offer a loan that it knows the small business will be able to pay back. The report noted the repayment is typically 10–11 percent, which is taken from the gross payment value daily from the small business. Square doesn’t fund the loans; it acts as a facilitator, taking all the data, analyzing it and then pairing investors with the businesses. Square Capital has an average default rate of 4 percent, noted the report.

For its second quarter, Square reported a loss of $0.14 per share on $379 million in revenues, up 51 percent, compared to the $0.09 per share loss on $344 million in sales The Street expected for the March period. That shortfall indicates that transaction volumes have been ramping up well (and, after all, gross payment volume was up 45 percent in the quarter, year over year) but that costs have more than kept pace, up 72 percent overall. Software and data product revenues grew as well, up 197 percent year over year, but still remain a relatively small part of the business.