Image source: Square Inc.
What: Shares of payment processing company Square Inc. (SQ -1.57%) dropped 36% in May, according to data provided by S&P Global Market Intelligence, after a disappointing quarterly report.
So what: Adjusted revenue jumped 64% to $146 million in the first quarter of 2016, but that was overshadowed by a sharp rise in operating costs. Expenses from operations jumped 72% to $207 million, including a $50 million litigation charge, and adjusted loss per share of $0.14 fell below the $0.09 target of Wall Street.
For the full year, Square expects revenue of $615 million to $635 million, but adjusted EBITDA is only expected to be $8 million to $14 million. Clearly, the company is having trouble leveraging growth to the bottom line.
Now what: Investors don't quite seem to know what to do with Square at the moment. It pops one month on good news, and then that move seems to be canceled out a month or two later with bad news. What we do know is that Square is growing rapidly and gaining market share with small businesses that value its services. And as positive as that is, the company still can't seem to keep costs under control to show a meaningful advance in the bottom line. I have hope for Square long term, but until it answers valid questions about how it's going to increase profitability, long-term investors should tread carefully.
