Square: 51 Pct Of GPV Comes From Larger Sellers

Square‘s Q4 earnings 2018 results came after market close on Wednesday (Feb. 27), showing the continuation of several trends seen in recent quarterly reports. These trends included double-digit gross payment volume (GPV) growth, as measured year on year, double-digit transaction gains and traction in newer technology offerings — such as point-of-sale (POS) financing to help sellers log their own top-line growth.

In terms of headline numbers, the payments processing firm reported adjusted revenues of $464 million, up 64 percent year on year, while the Street had looked for $454 million. Earnings on an adjusted basis were $0.14 per share, which matched the Street.

Gross Payment Volume And Large Seller Mix Growth

Digging into the numbers a bit, GPV was up 28 percent in Q4 to $23 billion. Transaction-based revenue was up 27 percent to $668 million. The Cash App, Square said, had more than 15 million monthly active users in December 2018, more than double the number seen in the final month of 2017.

In terms of seller mix, those with annualized volumes north of $500,000 were 24 percent of the GPV, while those between $125,000 and $500,000 were 28 percent. That means larger sellers made up 51 percent of the mix, compared to a similar tally of 47 percent in the same period last year. (Management also spotlighted the fact that verticals such as restaurants are seeing increased momentum with Square’s offerings.)

With more granular detail on mix and technology adoption, newly joined Square CFO Amrita Ahuja said during the conference call with analysts that 30 percent of those sellers serve customers across more than one channel on Square. She added that Virtual Terminal, Invoices and eCommerce API offered up more than 10 percent of the company’s GPI in Q4.

Square also said its recently launched Payroll offering has been useful in helping sellers manage operations, as smaller firms may be relatively underserved by traditional payroll providers. As much as one-third of firms that signed on to Square Payroll throughout 2018 were new to the company, according to supplemental materials filed by Square with its earnings announcement.

In Q4, Square Capital facilitated 72,000 business loans at $472 million, up 55 percent year on year.

In reference to questions about installment payment options (where payment plans can be set up for purchases ranging from $250 to $10,000), introduced during the final months of 2018, CEO Jack Dorsey noted the introduction is still “early,” but that the offering gives Square’s sellers a “tool” that can help compel customers to make a purchase.

Hardware revenue in Q4 was $18 million, up 51 percent year on year, and driven by Square Terminal, Square Register and third-party peripherals. All this leads to — as Dorsey said on the call — an “ecosystem” for the company’s sellers and customers.

In his comments on the Square Card, a free business debit card that allows sellers to access funds upon logging sales, Dorsey said the firm has identified a “pain point” that can be addressed by linking accounts and helping owners invest in their businesses. Square estimated that as much as 40 percent of Square Card beta sellers (per research conducted last month) did not previously have a business debit card. He noted that the card enables new businesses to launch without the need for traditional banking in place, which he termed “pretty profound.” Elsewhere on the call, he said the card can help underserved, underbanked sellers.

Ahuja and Dorsey also explained on the call how there had been a “network effect” that helped the company see growth in products and services that were announced and launched within the last five years. Moving forward, management said that focus would remain on mobile payments and online initiatives.

In after-hours trading, Square shares fell as much as 6 percent, as guidance on an adjusted basis of between $0.06 to $0.08 per share missed the Street estimate of $0.11. Square said it will continue to invest in growth.