It has been about a month since the last earnings report for Square (SQ). Shares have added about 18.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Square due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Square Reports Q3 Earnings
Square reported third-quarter 2020 adjusted earnings of 34 cents per share, beating the Zacks Consensus Estimate by 142.8%. Further, the bottom line surged 36% from the year-ago quarter.
Net revenues of $3.03 billion comfortably surpassed the Zacks Consensus Estimate of $2.15 billion. Further, the top line improved 140% from the prior-ago quarter.
The top line was driven by a strong momentum across the Cash App ecosystem that contributed $2.07 billion to net revenues during the reported quarter, up 574% year over year. Further, disbursements from the CARES Act stimulus programs and unemployment benefits aided growth in the Cash App engagement.
Moreover, strengthening momentum across Bitcoin and a strong adoption of Cash Card benefited the results. Additionally, accelerating transaction, subscription and hardware revenues contributed well.
Additionally, Square witnessed a solid traction across the seller ecosystem, which generated $965 million of revenues, up 5% year over year. Further, accelerating gross payment volume (GPV) drove the results.
However, uncertainties related to the COVID-19 pandemic remain concerns for the company.
Nevertheless, the company’s strengthening momentum in online channels and the growing card-not-present GPV are expected to act as tailwinds in the upcoming quarters.
Further, a strong acquisition of net-new transacting active Cash App customers is likely to continue driving the company’s top line.
Gross Payment Volume
GPV in the third quarter amounted to $31.7 billion,beating the Zacks Consensus Estimate of $29.6 billion. Moreover, the figure improved 12% year over year, which can primarily be attributed to strength acrossthe seller ecosystem during the reported quarter.
Solid momentum across sellers in the international regions remained a major positive. Seller GPV was up 46% year over year and contributed 11% to the overall GPV of the company.
Moreover, growth across beauty, personal care, retail, home and repair, professional services,andfood and drink verticals during the reported quarter remained positive
Additionally, the proliferation of online sales in the international region was also a positive, backed by which GPV from online channels soared 60% year over year.
Moreover, the card-not-present GPVwitnessed year-over-year growth of 24% in the third quarter. Robust online products, such as Square Online, Invoices,Virtual Terminal and e-commerce API contributed to thisupside.
Top-Line Details
Transaction (30.5% of net revenues): The company generated transaction revenues of $925 million, up 13% year over year.
Subscription and services (14.8% of revenues): The company generated $448 million revenues from this category, surging 60% from the year-ago quarter. This improvement can be attributed toa strong performance by Cash App, which contributed $354 million to the category’s top line. The figure was up 154% from the year-ago quarter. This was driven by a robust Cash Card spending and a growing Instant Deposit volume in the reported quarter.
Hardware (0.9% of revenues): Square generated revenues worth$27 million from this business, up 25% year over year. This was driven by strong unit sales of hardware devices. The company witnessed improved sales of contactless devices like SquareRegister and Square Terminal in the reported quarter.
Bitcoin (53.8% of revenues): The company generated revenues of $1.63 billion from this category, up significantly from $148.3 million. Square continued to benefit from the bitcoin space, driven by the increasing uptake of Cash App.Further, the company witnessed strong customer demand and growth in bitcoin actives in the third quarter.
Operating Details
Per management, gross profit grew 59% from the year-ago quarter to $794 million.
Adjusted EBITDA was $181 million, up 38% on a year-over-year basis.
Operating expenses came in at $745 million, jumping 59% from the prior-year quarter.
Product development expenses were $227 million, up 34% year over year, primarily dueto the rising engineering, data science and design personnel costs.
General and administrative expenses were $154 million, up 33% from the prior-year quarter. This was primarily due to finance, legal and support personnel costs.
Further, sales and marketing costs were $348 million, up 133% year over year due to increase in Cash App peer-to-peer payment transfer and Cash Card issuances.
Balance Sheet
As of Sep 30, 2020, cash and cash equivalents balance was $2.1 billion, up from $1.9 billion as of Jun 30, 2020.
Short-term investments were $762.4 million in the reported quarter, up from $714.3million in the previous quarter.
Long-term debt was $1.76 billion, decreasing from $1.77 billion in the previous quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 35.45% due to these changes.
VGM Scores
At this time, Square has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Square has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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