What happened
Shares of payment company Square (SQ -1.57%) fell another 19.6% in December, according to data provided by S&P Global Market Intelligence, as tech stocks took a beating. Oddly enough, shares have gained 18.1% so far in January, so recovery is already underway.
So what
Square was one of the many tech stocks that dropped in December as investors questioned how much longer the industry's rise would last. Rising interest rates caused concern, as did reports of a slowing economy in China. Apple issued a profit warning in early January, but when it said demand in China was weaker than expected, it solidified some of the theories about why tech stocks dropped during December.
Image source: Square.
With Square, investors have been punishing the stock ever since it gave weak guidance for the final quarter of 2018. Management said they expect $0.12 to $0.13 per share in earnings, below the $0.15 consensus from Wall Street, and EBITDA (earnings before interest, taxes, depreciation, and amortization) would be $75 million to $80 million, below the expected $81.4 million. If the economy begins to slow, it could take a further bite out of the company's growth potential.
Now what
A lot of the movement of Square's stock has been a mirror of what's happening in the market overall. But the stock's decline doubled market losses, in part because of how highly leveraged Square is. You can see below that the company has an impressive growth record, but it's still losing money and adding debt in the process:
I don't think it's time to worry about Square's long-term future, but do keep an eye on its growth rate and margins in 2019. If growth slows and margins don't expand, the company will face some difficult challenges getting to profitability.
Check out the latest Square earnings call transcript.
