Square: Moving Upmarket And Into Lending

It’s been nearly one year since Square IPO’d, and the market shrugged its collective shoulders. Yesterday’s earnings call showed a very different picture — one that had Square beating The Street on the back of larger merchants signing on and a big uptake in Square Capital lending activity.

Could it be a happy one-year anniversary for Square?

Since its debut on the public markets last year, the payments firm headed by the ubiquitous Jack Dorsey has had a rough go of it, at least as the stock price has been concerned, bowing at $12 and change, heading to nearly $16, crashing to $8 and round-tripping to a recent $11. And all that time, the firm has been bleeding red ink.

But Tuesday (Nov. 1), the numbers seemed to tell a story that investors, who bid the stock up nearly 5 percent after-hours, liked. Simply put, Square beat its own guidance on various metrics. The firm also felt confident enough to boost guidance for the remainder of the year.

Broadly speaking, the firm said that gross payments volumes gained 39 precent to $13.2 billion year over year and up sequentially from $12.5 billion. That helped translate to a total top line for Square of $439 million, versus The Street at $430 million, and that was a 32 percent gain since last year. The bottom line was red this time around, as has been the trend. The net loss per share was nine pennies, lurching ever closer to break-even compared to a loss of $0.35 in the year-ago third quarter. For the period that just ended, analysts’ consensus had been at $0.11 in net losses.

Drilling down into the numbers a bit, gross payments volume from relatively larger sellers was up 55 percent year over year, and that shows good traction on the firm’s stated goal to get scale into the larger sellers. The margin pressure that has been a worry among some observers on The Street did not seemingly hold sway in the latest period (as narrowing losses showed). As a percentage of transactions that come through the company’s processing business, Square said that 43 percent of sales come from merchants boasting annual sales of $125,000 or more. That compares favorably with the 37 percent contribution a year ago.

And in a spate of new features, the firm said it is adding scheduled deposit offerings and registered cards on files. As for EMV transactions speed, that has been winnowed down to just over four seconds from nearly six seconds, the firm said in its shareholder letter on Tuesday.

Management also called out growth within Square Capital, the cash advance and loan operation, which was up 70 percent, and that came across 35,000 loans with a total volume of $208 million. Heady growth but down sequentially compared to 123 percent seen in the second quarter of this year.  The firm later said that it has extended more than $1 billion, cumulatively, to more than 100,000 businesses.

But then again, this has been no easy year for new leaders to come to market, amid bad press and regulatory scrutiny bearing down on the industry at large.

And, said CFO Sarah Friar, borrowers are returning to the well for loans (and the firm has loaned $1 billion since the capital business launched two years ago). As for its delivery service known as Caviar, in the past two years, said management, volume has grown by 11 times cumulatively. All of this contributed to software revenues that were up 140 percent year over year to $35 million in the third quarter.

The quarter was good enough for Square to boost its revenue forecast for the year to a range of $1.69 billion–$1.70 billion, whereas once that tally had been $1.63 billion–$1.67 billion. The Street had been looking for $1.68 billion.


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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