Square’s dominant year hits a snag

Square is continuing to make its bid to capture the payments of small businesses around the world, as well as tap into the momentum of peer-to-peer payments products with Square Cash, as its payments volume continues a steady and methodical rise — though, Wall Street still seems a little skeptical today as the stock is down slightly.

Square’s gross payments volume, a critical metric for the company’s health and success, continued to rise year-over-year as it looks to go up against other payment providers and accrue a big share of payment volume. In fact, the growth year-over-year for its GPV has been pretty consistent, hovering around a 31 percent jump year-over-year on each quarter, while the company’s revenue saw a more significant jump than normal. Here’s a look at the numbers:

Here’s something we’ll be watching closely for the next few quarters as Square moves forward, however: its services revenue. The company said it generated $65 million in services revenue this quarter, which was nearly double last year — with Square saying Instant Deposit, Caviar and Square Capital contributed the majority. If we were to excise that $65 million from the company’s net revenue, the picture looks a little different:

That’s going to be important to Square, as it looks to crack into the entire experience of running a small business with both its Register products and its Square Capital business. Last month Square announced a $999 Register product that’s designed to serve as a one-stop point of sale for small businesses. Square has been able to tap into some demand from small businesses that are looking for an easier — or maybe slicker — approach to running their business with Register.

Still, on the hardware front, the company said it generated $10 million in revenue, which it said was slightly down on a sequential basis. That may end up changing as it looks to roll out the Register product, but Square said its hardware growth rates have normalized since the first half of 2016.

While Square has seen an enormous run-up in the past year, it could be that Wall Street has finally started to take a small step back and re-evaluate Square’s business after lifting its value by billions of dollars. And here’s a look at the revenue, which has also seen a pretty consistent rise over the past few quarters. Since the third quarter last year, Square’s adjusted revenue has grown by around 45 percent year-over-year each quarter. Here’s the chart:

In the past year, Square has been on one heck of a run, with the stock tripling since November 2016. Part of that is because the company has very consistently impressed investors as it continues to methodically grow its business, which is now worth more than $13 billion. Wall Street seems mixed on how to react here from the report today, as the stock has swung from losing 5 points up to gaining 3 following the release of the report. Here’s what the run looks like:

Overall, it was a pretty good quarter for Square when you look at the numbers, though we’ll be keeping an eye on what its revenue looks like without services as that story continues to play out. The company also raised the guidance for its financial performance for the year, saying it would see a growth of around 37 percent in its adjusted revenue (which is the better metric for its performance than net revenue).

Here’s the final slash line for the company:

  • Q3 adjusted revenue: $257 million, compared to Wall Street estimates of $244.6 million
  • Q3 earnings per share: 7 cents per share, compared to Wall Street estimates of 5 cents per share
  • Q3 GPV: $17.4 billion, up 31 percent from $13.2 billion in Q3 last year
  • Q4 revenue forecast: $262 million to $265 million