Square Corners The Market On Q4 Transaction Growth

Square released its earnings yesterday, and it beat expectations on almost every metric, from revenues to gross transaction volumes to the bottom line itself. And among the standouts was Square Capital, which helped subscription and services revenues fly with 81 percent gains. We take you inside.

Cutting no corners in its quest for growth, Square’s latest results were better on the top and bottom lines than The Street had expected, and unsurprisingly, transactions helped drive momentum.

The firm said that it processed $13.7 billion in payments, a headline number that was 34 percent higher than had been seen a year ago. Still though, the firm reported a loss of $0.04 this past quarter, or about $80.5 million, markedly better than $0.34 in red ink last year. Revenues were up 21 percent to $451.9 million, and that was better than the $449 million The Street had expected. Analysts expected a loss of $0.09 on the bottom line.

In a bit of granular detail about revenues, “transaction-based revenues” tied to core payment processing, which was up 35 percent to $402 million, and hardware sales were $8.9 million, as upgrades were done for contactless and chip card readers.

Among the standout metrics for the quarter, subscription- and services-based revenue soared 81 percent to $40.5 million, and that was tied to Square Capital, Caviar (the food ordering and delivery service it acquired) and Instant Deposit. Further detail on the capital business showed that Square facilitated more than 40,000 business loans at $248 million in the quarter, up 68 percent from a year ago.

Shares were up more than 5 percent after-hours, as management shed additional light on the quarter, noting that gross payments volume (GPV) was $50 billion, up 39 percent year over year, and the firm noted that the Virtual Terminal for browser-based payments saw $40 million in GPV in January alone.

Looking ahead for the year, guidance brackets consensus, with a loss of $0.20–$0.24 in the quarter on revenues of $2.09 billion–$2.2 billion, and analysts had seen a loss of $0.31 on a $2.1 billion top line.

GPV seller volume continued to show traction in sellers of size (revenue size) as the mix moved toward sellers with greater than $500,000 in annualized volume, at 14 percent, up from 9 percent two years ago. The bulk of sellers, as has been the trend, has been toward smaller firms with less than $125,000 GPV annually. CFO Sarah Friar told analysts on the call following earnings that the firm still sees promise in lending to smaller firms and even micro-firms. There’s also the ability for Square, she and CEO Jack Dorsey said on the call, to cross-sell and upsell its products and services to existing customers. “We’re clearly still in growth land,” said the CFO, noting that she felt comfortable with the forward guidance provided.

As for future avenues of growth and attention, CEO Dorsey said that machine learning would be one way the firm would look to enhance interactions with clients via customer support. The more automated sellers’ processes are, the more room those sellers have to grow, he added. And apps, such as the Square Retail app that debuted earlier this year, are another avenue of growth this year and beyond, the company has said.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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