Earnings

Square GPV Gains Amid Larger Sellers, Capital Loans Surge 34 Pct

Square’s gross payment volumes surged 29 percent year over year and larger sellers, at volumes $125K and above, were a larger percent of the mix — and lending increased by double digits. Oh, and not surprisingly, there were even some bitcoin-related revenues.

Square posted results Wednesday (November 7) that showed double-digit gains in gross payment volumes, continued traction amid a base of larger merchants, and notable growth in subscription and software-based revenues.

The company’s third quarter adjusted revenues came in at $431 million, up 68 percent, and better than the $414 million consensus. Further adjusted revenues, said the firm, exclude Weebly and Zesty results, up 56 percent.

Adjusted earnings per share of 13 cents beat the Street by two pennies.

In terms of other revenue line items, the company said that subscription and services-based revenues were $166.2 million, up 155 percent from last year.

Hardware revenues were $17.6 million, up from $10.1 million in the third quarter last year.

Supplemental materials provided by the company revealed that gross payment volume was $22.5 billion, up 29 percent. Within the gross payment volume, 52 percent came from larger sellers, said the firm, defined as $125,000 to $500,000 (at 28 percent) and greater than $500,000 in annualized volume, at 24 percent of the volume. That compares with 2017 percentages, respectively, of 27 percent and 20 percent.

The company said in its supplemental materials that “once sellers are part of the Square ecosystem, we help them grow. In the third quarter of 2018, over 40 percent of larger seller GPV came from sellers that started on Square as micro-sellers.” Overall, gross payment volume from larger sellers was up 41 percent year on year.

Transaction-based revenues were $655 million, up 29 percent, and Square said that profit as a percentage of GPV was 1.07 percent in the latest quarter, up from 1.05 last year.

The latest growth marks a bit of deceleration from previous quarters, where GPV had been 30 percent or more, and the stock dipped slightly in after-hours trading.

Bitcoin-related revenues stood at $43 million through the Cash App (which allows users to buy and sell the cryptocurrency), up from $37 million in the second quarter.

With some granular insight into revenue contribution, subscription and services-based growth was driven primarily by Instant Deposit, Cash App —  where CEO Jack Dorsey said users have been using the offering as a bank account, or conduits for payroll and peer-to-peer activity — Caviar, and Square Capital.

In reference to the latter business, in the third quarter of 2018 Square Capital facilitated over 62,000 business loans totaling $405 million, up 34 percent year over year, revealed the company. The company said in reference to installment activity — the purchase-finance product where buyers can finance purchases between $250 to $10,000 — that of originations by industry, 40 percent came from retail, 36 percent from professional services and 19 percent from home and repair. Management hinted in its supplementals at a greenfield opportunity as 70 percent of Square sellers do not offer financing to customers.

Hardware revenue in the third quarter of 2018 was $18 million, up 74 percent year over year, with continued growth from Square Register, Square Reader for contactless and chip, Square Stand, and third-party peripherals.

In the conference call Dorsey and CFO Sarah Friar held with analysts, Dorsey said that replacing the CFO — who is stepping down from the company to become CEO of neighborhood social network Nextdoor — remains a priority.

Dorsey shone a spotlight during the conference call with analysts on the debut last month of Square Terminal, an all-in-one device that takes both card and mobile payments — and where the strategy, according to reports, has been to get merchants to replace their legacy terminals with the newer Square POS offerings, which are battery powered.

“One of the things that we are most excited about is seeing how people use it,” said the CEO said. He told analysts that “we believe we have built something that has a lot of utility, and that will enable in ways that we were not necessarily expecting.” He cited the use case that is developing where restaurants have used the terminals to go directly to their customers “right at the table and charge them right there.” He also said that advancements continue around the development of APIs and SDKs, where speed to market for new products — such as the company’s virtual terminals — has been in evidence.

He also said that the market for the terminal should be huge, as the firm notes that “we hear from our sellers directly [that] they don’t want to use their personal device to accept credit cards” and that those merchants now have an option with the new Square Terminal offering.

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