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Square Earnings: Cash App Volume Soars

By Daniel Sparks – May 1, 2019 at 6:27PM

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Strong growth persists as Square's subscription and services-based revenue more than doubles.

The bar was high going into Square's (SQ -0.35%) first-quarter earnings report on Wednesday afternoon. The financial-technology company has seen impressive growth over the past year -- both in its underlying business and its stock price. In addition, management has provided an optimistic outlook for continued momentum throughout 2019.

Square lived up to its promise for more strong growth in Q1, reporting sharp growth in adjusted revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA). Growth was driven by robust double-digit growth in gross payment volume and a more than doubling of Square's important subscription and services-based revenue.

Here's a closer look.

A man using the Square Cash App.

Square's Cash App. Image source: Square.

Square's first-quarter results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Adjusted revenue

$489 million

$307 million

59%

Adjusted EBITDA margin

$62 million

$36 million

72%

Net income (loss)

($38 million)

($24 million)

N/A

Data source: Square first-quarter shareholder letter. Adjusted revenue excludes transaction-based costs, bitcoin costs, and the effect of deferred revenue adjustment related to purchase accounting. Table by author.

What happened with Square this quarter?

  • Revenue rose 43% year over year, a deceleration from 51% growth in Q4.
  • Adjusted revenue increased 59% year over year, a deceleration from 64% growth in Q4.
  • Excluding acquisitions of Weebly and Zesty, adjusted revenue rose 49% year over year.
  • Square's net loss was negatively impacted by a $14 million charge from a mark-to-market valuation of its Eventbrite investment.
  • Adjusted earnings per share were $0.11, up from $0.06 in the year-ago quarter.
  • Gross payment volume increased 27% year over year, to $22.6 billion.
  • Subscription and services-based revenue increased $126% year over year, to $219 million.
  • Square Capital facilitated $508 million worth of loans, up 50% year over year.

What management had to say

Management was particularly pleased with its 72% year-over-year growth in adjusted EBITDA. The trend highlights "our ability to balance growth with ongoing investment in our business," management said in Square's first-quarter shareholder letter.

Square also pointed out the momentum of its peer-to-peer payment platform -- Cash App. The app was the primary driver of the company's 97% year-over-year growth in subscription and services-based revenue when adjusted to exclude revenue from acquisitions of Weebly and Zesty, management said.

"Within Cash App, we continued to grow the number of monthly active Cash Card customers and saw an increase in transaction frequency per customer," management added. More specifically, management said its cash app volume, or the total dollar amount of peer-to-peer, cash card, and cash for business transactions, was 2.5 times greater than it was in the year-ago quarter, "reflecting the growing network effects, reach, and engagement of this ecosystem,"

Looking forward

For its second quarter, Square said it expected adjusted revenue between $545 million and $555 million. The midpoint of this guidance range represents 43% year-over-year growth. Management also said it expects its second-quarter non-GAAP earnings per share (EPS) to be between $0.14 and $0.16, up from $0.13 in the second quarter of 2018.

For the full year, Square raised its full-year revenue outlook. The company now expects adjusted revenue between $2.25 billion and $2.28 billion, up from a previous forecast for adjusted revenue between $2.22 billion and $2.25 billion. But management maintained its guidance for full-year adjusted EBITDA between $405 million and $415 million and non-GAAP EPS between $0.74 and $0.78.

"Given the significant market opportunity ahead of us, we will continue to be purposeful as we reinvest in our business to drive long-term growth," Square said about its outlook. "Our guidance for the full year of 2019 reflects both investment and growing profitability."

Daniel Sparks owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.

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