Square's Fourth Quarter Highlights More Strong Growth

Here's what's driving Square's strong growth.

Daniel Sparks
Daniel Sparks
Feb 28, 2019 at 9:16AM
Technology and Telecom

Financial technology company Square (NYSE:SQ) just posted another quarter of strong growth. Revenue surged thanks to higher gross payment volume and soaring subscription and services-based revenue. The fourth-quarter update captured the company's broad-based momentum across its offerings and its continued traction with larger sellers.

Here's a closer look at the results.

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

Square Register. Image source: Square.

Square's fourth-quarter results: The raw numbers

Metric

Q4 2018

Q4 2017

Change

Adjusted revenue

$464 million

$283 million

64%

Adjusted EBITDA margin

$81 million

$41 million

97%

Net loss

($28 million)

($16 million)

N/A

Data source: Square fourth-quarter shareholder letter. Adjusted revenue excluded transaction-based costs, bitcoin costs, and the effect of deferred revenue adjustment related to purchase accounting. EBITDA = earnings before interest, taxes, depreciation, and amortization. Table by author.

What happened with Square this quarter?

  • Square's revenue rose 51% year over year, in line with the 51%¬†growth it saw in Q3.
  • Adjusted revenue jumped 64% year over year, a deceleration from 68% growth in Q3.
  • Excluding acquisitions of Weebly and Zesty, adjusted revenue increased 53% year over year.
  • Square's net loss was $28 million, or $12 million when excluding the impact of a mark-to-market valuation of the company's Eventbrite investment.
  • Adjusted EPS was $0.14, up from $0.08 in the year-ago quarter.
  • Gross payment volume increased 28% year over year to $23 billion.
  • Subscription and services-based revenue rose 144% year over year to $194 million.
  • Square Capital facilitated $472 million worth of loans, up 55% year over year.

What management had to say

With three product launches in recent months, including a new payroll app, a software development kit for accepting in-app payments, and a business card, management took time in its fourth-quarter shareholder letter to highlight its ability to turn new products into meaningful parts of its business over time.

We are driving innovation and adoption of new services by reinvesting in our ecosystem: In the fourth quarter of 2018, revenue from products launched in the last five years was 37% of total net revenue and 51% of Adjusted Revenue, up from 22% and 36%, respectively, in the prior year period.

Square also highlighted strong growth in its consumer-facing Cash App, which had over 15 million monthly active customers in December of last year -- more than double what it had in December 2017.

Finally, management importantly pointed out the company's continued momentum with what it calls "larger sellers," or sellers that generate over $125,000 in annualized gross payment volume. "In the fourth quarter of 2018, GPV from this group grew 39% year over year and accounted for 51% of total GPV, up from 47% in the fourth quarter of 2017," the company said.

Check out the latest Square earnings call transcript.

Looking forward

For the first quarter, adjusted revenue forecast is for between $472 million and $482 million, representing 55% year-over-year growth based on the midpoint of this guidance range. For the full year, adjusted revenue is expected to land between $2.22 billion and $2.25 billion, up from 2018's $1.59 billion.

Management expects its full-year adjusted earnings per share to be between $0.74 and $0.78, up from $0.47 in 2018 and $0.27 in 2017.