The end of a no good, terrible day finally came for Square, the once vaunted payments processing company, and when it was all over, the shares were down a pretty stomach turning 21 percent.
As we had thought, the exodus may be gathering some steam, and the pitter-patter of little feet taking steps toward the exit became a huge stampede.
The simple fact remains that earnings eventually do matter, or at least the eventuality of when they might come (eventually) matters. Square disappointed on its expense leverage, but investors saw a few other things that led to the Friday rout.
Sales growth of 51 percent is nothing to sneeze at, but the red ink is a deluge, with the implicit question in place: Beyond valuing a firm on sales metrics, where else do you turn? Not EBITDA, apparently.
And for a firm that has made its bones on processing, moving toward the capital realm may not be the salve it had been looking for. The business model to take on traditional loans had $153 million in activity seen this past quarter, which sounds like a lot on an absolute basis but meant rather little with an anemic growth rate of just 4 percent sequentially. The firm blamed termed tough market conditions. Tough credit conditions are not what you want to hear about when you are leaving the merchant cash advance arena in favor of traditional loans.
Yes, the numbers that came from the traditional "reader" business were nice to see, with hundreds of thousands in the field. The $50 million settlement with a co-founder makes one wonder if he is going to make out better than some of the original investors anxiously awaiting lockup expiration. The problem is — when you jump from a tightrope (walking the fine line of hardware and services) to another tightrope (loans, in a tough market), where's the net?