Square Earnings: 5 Reasons the Stock Is Up 106% in 2018

Square's stock has soared -- but for good reason.

Matthew Frankel, CFP
Matthew Frankel, CFP
Aug 3, 2018 at 6:17AM

Fintech company Square (NYSE:SQ) has performed incredibly well for its investors. The stock is up by about 450% over the past three years and has risen by 106% in 2018 alone.

However, this doesn't mean Square is too expensive. In fact, the company's recently released second-quarter earnings show us exactly why the stock has done so well. Here are five particularly important takeaways from the report that investors should know.

Square card reader attached to smartphone in a toolbelt.

Image source: Square.

Growth is accelerating

Perhaps the most impressive aspect of Square's growth story isn't just that the business is growing revenue at a 48% annualized rate. Rather, it's that the growth rate is steadily accelerating quarter after quarter.


Q2 2018 YOY Growth Rate

Q1 2018 YOY Growth Rate

Q2 2017 YOY Growth Rate

Total net revenue




Gross payment volume




Adjusted revenue




Data source: Square 2Q18 earnings release.

Notice that the growth in gross payment volume has slightly decreased. As Square's core business of providing payment-processing hardware gets larger and larger, it's natural that its growth rate will start to slow a bit. However, the fact that revenue is rising in spite of this indicates that the company is doing an excellent job of driving growth in its other business segments, which we'll get to in a bit.

Industry-specific products are catching on

In recent years, Square has started selling industry-specific POS products, such as Square Appointments for service-based businesses and Square for Retail for retail businesses. During the second quarter, Square introduced its Square for Restaurants POS system, which could be a big deal for the company's payment volume growth.

Here's why. Square estimates that full-service restaurants represent about $200 billion of annual sales in the U.S. alone. What's more, Square's restaurant offerings could help bring some larger businesses into the company's ecosystem. Traditionally, Square's products have resonated with smaller merchants, with 78% of the gross payment volume (GPV) coming from sellers with less than $500,000 in annual GPV each. However, the average Square for Restaurants user has annual GPV of more than $650,000.

Another restaurant-specific product, the Caviar food-ordering platform, is growing at an incredible rate and is one of the reasons for the accelerated growth. In fact, Caviar revenue has more than doubled over the past year.

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The Cash app is growing exponentially

One of Square's largest focus areas recently has been its Cash app, and it looks like its efforts are paying off nicely. In May, Square launched its Cash Boost feature, which incentivizes people to use the Cash Card at certain merchants by offering discounts. Additionally, the company has taken steps to integrate the Cash app into other Square products, such as the Caviar platform I discussed earlier.

As a result, the monthly rate of Cash Card spend has almost tripled since December 2017. As the No. 1 finance app in the App Store and having just recently launched in the U.K., this could continue to be a big driver of Square's growth going forward.

Square Capital could still be just scratching the surface

In the second quarter, the Square Capital small business lending platform continued to grow. If you aren't familiar, Square Capital provides business loans to Square POS users, using their sales volume as a qualification.

Square Capital originated more than 60,000 loans in the second quarter for a total of $390 million, which is 22% more than the second quarter of 2017.

However, there could be tremendous potential in the years ahead. For one thing, 60,000 loans represent just a small percentage of the roughly 2 million sellers who use Square. And, while Square has withdrawn its application for a banking license, the company recently confirmed that it still plans to pursue a depository bank of its own.

Raised 2018 guidance

As a final highlight from Square's earnings report, the company raised its full-year guidance from its already ambitious targets. The company now sees 55% annual adjusted revenue growth, up from 49% previously, and it now expects a narrower net loss.

In a nutshell, Square reported accelerating growth rates and success with newer products with lots of room to grow. It expects things to get even better from here. That's why the stock is up after earnings and has more than doubled in 2018 alone.