High-flying payments company Square Inc. beat top- and bottom-line expectations for its third quarter on Wednesday, but shares slipped amid concerns about the company’s fourth-quarter outlook and the impact the competition may be having on growth.
reported $431 million in adjusted revenue, which is net of transaction-based or bitcoin-trading costs, coming in ahead of the $414 million that analysts surveyed by FactSet had been projecting. The company also generated 13 cents in adjusted earnings per share, above the 11-cent consensus estimate.
But while Square increased its full-year revenue forecast and tightened its earnings projections, the company’s fourth-quarter outlook came up a bit light. Square forecasted 12 cents to 13 cents a share in adjusted earnings, while the FactSet consensus called for 15 cents.
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MoffettNathanson analyst Lisa Ellis told MarketWatch that other possible disappointments were the company’s transaction-based-revenue and gross-volume metrics, both of which grew just shy of 30%.
“That is a very mild deceleration,” she said in an email. “Investors will be concerned Square is starting to bump into competition from copycats, Clover, etc.”
Square shares were down 3.6% in after-hours trading Wednesday, after gaining 7% during the regular session.
Ellis also flagged that Square saw larger-than-expected impacts from its acquisitions of Weebly and Zesty, meaning that Square’s organic beat is actually lower than what the reported figures show.
Square posted its first GAAP profit during the third quarter, but the company disclosed that this was largely due to its investment in Eventbrite Inc.
which went public during the quarter. The company now has to show mark-to-market numbers for that investment every quarter, and it would have posted a net loss during the latest quarter if not for the Eventbrite impact.
The company continued to increase the portion of its business coming from sellers that do more than $125,000 in annual gross payment volume, which reached 52% in the third quarter, up from 50% in the second.
Chief Financial Officer Sarah Friar said on a call with reporters following the release that a number of factors are driving Square’s momentum with bigger businesses, including the ability to self-onboard and the complexities of dealing with multiple payments products. She said that the company’s new Terminal product, which seeks to replace the little black PIN-pad boxes traditionally found on store counters, will add to the company’s appeal with larger merchants.
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Chief Executive Jack Dorsey said on Square’s earnings call that he sees a “huge” market in general for terminals. “One of the things that we hear from our sellers directly is they don’t want to use their personal device to accept credit cards, and this gives them an option to make sure that they don’t have to compromise on that,” he said.
Friar will be leaving the company at the end of the year to become CEO of Nextdoor Inc., a social network for neighborhoods, and Dorsey told investors on the conference call that his “No. 1 focus at the company” is finding a replacement. “We will not be sharing a timeline, but we are working with urgency,” he said.
Square shares have gained 125% over the past 12 months, as of Wednesday’s close, compared with an 8.6% rise for the S&P 500