Square's (NYSE:SQ) third quarter highlighted strong execution across a broad base of initiatives, including rapid growth in the company's gross payment volume, cash app ecosystem, instant deposit, Square Capital, hardware, and more. Stellar performance during the period led to better-than-expected top- and bottom-line results.

Here's a closer look at Square's third quarter -- and key catalysts behind the period's momentum.

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

Square Register. Image source: Square.

Square Q3 earnings: the headline figures

The financial technology company's adjusted revenue jumped 40% year over year to $602 million. That beat analysts' average forecast for revenue of $596.4 million. Notably, when excluding revenue from Square's food-delivery service Caviar, a company Square recently sold, from the results in both the third quarter of 2018 and the third quarter of 2019, adjusted revenue was up 43% year over year.

Non-GAAP earnings per share rose 92% year over year, beating a consensus estimate for $0.18.

Metric

Q3 2019

Q3 2018

Change

Adjusted revenue

$602 million

$431 million

40%

Non-GAAP earnings per share

$0.25

$0.13

92%

Data source: Square third-quarter shareholder letter. Adjusted revenue is net revenue less transaction-based costs, bitcoin costs, and the effect of deferred revenue related to purchase accounting.

Square's net income was $29 million, up from $20 million in the third quarter of 2018. When excluding the impact of a mark-to-market valuation of Square's investment in Eventbrite, net income in the third quarter of 2019 was $27 million, up from a loss of $17 million in the third quarter of 2018.

Demonstrating the operational leverage of Square's business model, the tech company says its seller ecosystem is on pace to achieve an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 30% in 2019, up from negative-9% in 2015.

Large sellers continue to drive growth

Square's gross payment volume (GPV) in Q3 increased 25% year over year to $28.2 billion. Large sellers continued to drive outsize growth in GPV. GPV from mid-market sellers, or sellers that generate $500,000 or more in annualized GPV, increased 44% year over year and accounted for 27% of GPV, up from 24% of GPV in the year-ago period. The company's "larger sellers," all sellers with annual GPV in excess of $125,000, increased 34% year over year and represented 55% of total GPV. 

The company said its newest hardware solutions, Square Terminal and Square Register, are helping the company cater to larger sellers. "[T]he average annualized GPV of Square Terminal and Square Register sellers are over $175,000 and $350,000, respectively," management said in the company's third-quarter shareholder letter.

Sharp growth in subscription and services-based revenue and gross profit

Square's subscription and services-based revenue was $280 million during the period, up 68% year over year. Even more impressive, the segment's gross profit was $216 million, up 82% year over year. The segment was driven by rapid growth in Cash App, Square Capital, and Instant Deposit, management said.

Guidance

Management expects adjusted revenue in Q4, when excluding Caviar in the year-ago comparison, to rise to between $571 million and $581 million -- a 37% year-over-year increase based on the midpoint of this range

The company guided for fourth-quarter adjusted EBITDA to between $112 million and $117 million. The midpoint of this range implies 41% year-over-year growth.