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Square Earnings: What to Watch

By Daniel Sparks – Updated Nov 5, 2018 at 8:23PM

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After five quarters in a row of accelerating revenue growth, the pressure is on.

While this week is jam-packed with earnings reports from tech companies, one quarterly update will be particularly interesting to watch: Square (SQ -0.81%). The financial-technology company has grabbed investors' attention recently with its accelerating growth and soaring stock price.

When Square reports its third-quarter results on Nov. 7, investors will look for more stellar performance. After all, the company will need to justify its stock's 100% gain over the past 12 months.

Ahead of Square's third-quarter earnings, here's a preview of some areas to watch.

An employee and customer interact with the two displays included with Square Register

Square Register. Image source: Square.

Revenue growth

After five quarters in a row of accelerating revenue growth, you can bet investors have high hopes for the company's top line for yet another quarter.

In Square's second quarter, revenue was up 48% year over year -- an acceleration from 45% revenue growth in the first quarter of 2018. The company's adjusted revenue increased 60% year over year -- up from 51% growth in Q1.

For Square's third quarter, analysts expect Square to report adjusted revenue of $414 million, up 61% year over year. 

Gross payment volume from large sellers

One of the key areas of Square's business that has been helping propel growth is the company's ability to attract what Square calls "larger sellers," or sellers that generate over $125,000 in annualized gross payment volume.

In Square's second quarter, gross payment volume from larger sellers increased 42% year over year, significantly outpacing 30% year-over-year growth for Square's overall gross payment volume. Large sellers have become important to Square: They accounted for 50% of total gross payment volume during the quarter, up from 46% in the year-ago quarter.

Square's late 2017 launch of its high-end point-of-sale device -- Square Register -- and its new Square for Restaurants platform should help Square continue attracting droves of new large sellers.

A restaurant employee interacts with Square for Restaurants platform

Square for Restaurants platform. Image source: Square.

Subscription and services-based revenue

Square's subscription and services-based revenue, which is comprised of revenue from Instant Deposit, Caviar, Square Capital, Payroll, and other subscriptions and services, has been on a tear recently. In the company's second quarter, subscription and services-based revenue skyrocketed 127% year over year. This was a sharp acceleration from 98% growth in Q1. 

To be fair, the acceleration in Square's subscription and services-based revenue benefited from the company's recent acquisitions of Zesty and Weebly, but management said in the company's second-quarter earnings call that subscription and services-based revenue growth still accelerated when excluding these acquisitions. 

Investors will get to check on these areas of Square's business when the company reports earnings this week. Square's third-quarter earnings release will be posted to its investor relations website after market close on Wednesday, Nov. 7. 

Daniel Sparks owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has the following options: short January 2019 $80 calls on Square. The Motley Fool has a disclosure policy.

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