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9 Metrics Highlight Square, Inc.'s Strong First Quarter

By Daniel Sparks - May 7, 2018 at 5:47PM

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Growth is the name of the game at Square.

Shares of financial-technology company Square (SQ -5.21%) have climbed about 4% higher since the company reported its first-quarter results last week. Bullishness toward the stock isn't surprising, considering how the quarter put the spotlight on the company's accelerating growth.

As investors consider the implications of Square's first quarter, here are some insightful metrics from the period, including a look at the fintech company's hardware, bitcoin, subscription and services-based revenue, Square Capital, guidance, and more.

A person using the Square Cash App.

Image source: Square.

1. Adjusted revenue jumped 51%

Square's consistent trend of accelerating revenue growth rates continued in the company's first quarter, with adjusted revenue (net revenue less transaction-based costs and bitcoin costs) rising 51% year over year. This is up from 47% year-over-year growth in adjusted revenue in Square's fourth quarter of 2017.

2. Adjusted EBITDA increased 33% year over year

Square's adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, was $36 million -- $9 million higher than its $27 million of adjusted EBIDTA in the year-ago quarter.

3. Square's adjusted EBITDA margin was 12%

This was lower than its adjusted EBITDA margin in the year-ago quarter. But investors shouldn't view this lower margin as a sign of degrading economics. Instead, management said the lower margin "reflects our reinvestment in the business to drive long-term growth."

4. Bitcoin revenue was $34 million

After launching the ability to buy and sell bitcoin within its Cash App earlier this year, Square quickly started generating revenue from the new product. Bitcoin revenue during the quarter hit $34.1 million. But costs associated with buying bitcoin were just as formidable at $33.9 million.

This reaffirms that investors should view Square's bitcoin activity as immaterial to Square's business.

5. Cash App remains No. 1 Finance app in the App Store

Square's Cash App continues to thrive, remaining the most downloaded finance app in Apple's App Store.

6. Subscription and services-based revenue soared 98%

Square increased in its subscription and services-based revenue 98% year over year to $97 million. The segment is benefiting from strong growth in Instant Deposit, Caviar, and Square Capital, management said. Instant Deposit's growth was fueled by higher volume from its seller base and from the Cash App. In addition, Square's Cash Card is "becoming a more meaningful contributor to subscription and services-based revenue growth," management said.

Subscription and services-based revenue now accounts for a meaningful 32% of Square's total adjusted first-quarter revenue, up from 24% of adjusted revenue in the year-ago quarter.

7. Square Capital facilitated over 50,000 business loans

This is up from about 40,000 loans in the year-ago quarter. These loans totaled $339 million, up 35% year over year.

8. Hardware revenue climbed 60%

Still a fairly insignificant sum to Square's overall revenue, Hardware revenue increased 60% year over year in Q1, rising to $14 million. The sharp increase was driven by the launch of Square Register, which started shipping in December of last year, as well as growth in Square Stand and third-party peripherals.

A customer uses a chip reader built into Square Register.

Square Register started shipping in December 2017. Image source: Square.

Hardware costs notably increased even faster than Square's hardware revenue, rising 56% year over year to $19.7 million, showing why investors shouldn't view Square's hardware business as a profit center for the company. Higher costs in hardware can easily be explained by the company's recent launch of its all-new Square Register, which is by far the company's most comprehensive and expensive hardware product yet.

9. Square expects 2018 adjusted revenue to rise 44%

Investors can expect more strong growth throughout the year, as management guided for adjusted revenue during the full year of 2018 to be between $1.4 billion and $1.43 billion, representing 44% year-over-year growth based on the midpoint of this guidance range. This is up from a previous forecast for adjusted revenue during this period to rise 34% year over year.

Overall, Square's first quarter helped illustrate the meaningful drivers behind Square's rapid growth. Of course, investors should also keep in mind that Square needs to be delivering strong results. Along with its stock's 160% gain over the past year is Square's pricier valuation. The stock currently trades at more than eight times sales -- about twice its price-to-sales ratio at this time last year.

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