Financial technology company Square (SQ 1.52%) has been on a roll recently -- and that momentum persisted into the company's second quarter. Square reported its fifth consecutive quarter of year-over-year revenue growth as its second-quarter loss per share narrowed.
The solid quarterly results include lots of interesting trends, from soaring adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to continued momentum in large sellers. Here's what investors should know.
Square Register. Image source: Square.
Square's second-quarter results: The raw numbers
|
Metric |
Q2 2018 |
Q2 2017 |
Change |
|---|---|---|---|
|
Adjusted revenue |
$385 million |
$240 million |
60% |
|
EBITDA margin |
18% |
15% |
N/A |
|
Net loss per share |
($0.01) |
($0.04) |
N/A |
Data source: Square second-quarter shareholder letter. Adjusted revenue excludes transaction-based costs, bitcoin costs, and the effect of deferred revenue adjustment as a result of purchase accounting. Table by author.
What happened with Square this quarter?
Square's momentum was undeniable in Q2.
- Square's 60% year-over-year growth in adjusted revenue was up significantly from 51% growth in Q1.
- Adjusted EBITDA jumped from $36 million in the year-ago quarter to $68 million.
- Revenue from Square's food delivery service Caviar more than doubled from the year-ago quarter.
- Spending on Square's Cash App has grown to $3 billion on an annualized run rate -- just one year since the app's launch.
- Gross payment volume (GPV) increased 48%, to $815 million, during the quarter. This is up from 45% year-over-year growth in Q1.
- Adjusted revenue from subscription and services-based revenue soared 131% year over year, to $137 million.
- Hardware revenue shot up 78% year over year, driven by Square Register, Square Stand, and Square Reader.
What management had to say
Management was particularly happy with its continued growth from large sellers. "Half of our GPV came from larger sellers, which are those that generate over $125,000 in annualized GPV," said Square CFO Sarah Friar during Square's second-quarter earnings call. "This is up from 46% in the second quarter of 2017, and highlights how our cohesive ecosystem is resonating with sellers of all sizes."
Square's just-launched platform for restaurants, Square for Restaurants, is doing a great job at attracting these larger sellers, Friar noted. "I think the good is we are seeing it as a push into larger sellers [with Square for Restaurants], as we expected. The average GPV of our Restaurants customer is $650,000."
Square for Restaurants. Image source: Square.
Looking forward
Given Square's significant momentum, management increased its guidance for full-year revenue. Square now expects total 2018 revenue between $3.18 billion and $3.22 billion, up from previous guidance for revenue between $3.03 billion and $3.09 billion. Similarly, management raised its guidance for adjusted revenue to a range of $1.52 billion to $1.54 billion, up from a previous forecast for revenue between $1.45 billion and $1.48 billion.
Highlighting Square's momentum, the midpoint of management's guidance range for adjusted revenue represents 55% year-over-year revenue growth, up from a previous forecast for 49% revenue growth. For management's third quarter, Square expects adjusted revenue to climb 59% year over year.
Management continues to expect adjusted EBITDA to be between $240 to $250 million, despite expectations for higher revenue growth. Friar said this reflects Square's decision to "continue to reinvest to drive future growth."
