Square surprised Wall Street with a classic beat and raise quarter, which sent shares surging by 20% before they hit a ceiling. Analysts quickly got to work raising their price targets for the digital payments platform. It seems that at least Jack Dorsey’s “other” company isn’t following in the footsteps of Twitter – at least not yet anyway.
Square beats Wall Street estimates
Square reported adjusted revenues of $171 million, against the consensus of $160 million, on adjusted losses of 8 cents per share, which was better than the expected losses of 11 cents per share. Gross purchase volume grew 42% to $12.5 billion, which beat the consensus of $11.9 billion. The take rate was 2.93%, compared to last year’s 2.96%, although it was better than Stifel’s estimate of 2.9%. Excluding the promotional credits for the contactless reader, the take rate would have been 2.94%, the firm noted.
Software & Data Product revenue grew 130% to $29.7 million, which was also ahead of consensus at $26.5 million. Transaction renues increased to $365 million. Adjusted EBITDA was $12.6 million with a 7.3% margin, which beat Stifel’s estimate of -$800,000 with a margin of -0.5%.
Square management increased their full-year outlook again for revenue and adjusted EBITDA, which points to 47% growth of the midpoint from 39% previously. The new guidance range for revenue is $655 million to $670 million, which compares to the previous outlook for $615 million to $635 million. The company expects adjusted EBITDA to be between $18 million and $24 million, representing a $10 million increase.
Deutsche Bank analyst Bryan Keane, who has a Hold rating and $13 price target on Square, sees room to run in terms of EBITDA improvement. He noted that the company’s margins improved seven points year over year to hit 7% as the company became profitable more quickly than possible. Keane believes scale, operating leverage, higher margin products, and positive dollar-based retention will drive improvements in margins, although hardware and investments in growth will likely partially offset these positive benefits.
Wedbush raises price target for Square but remains bearish
Wedbush analysts Gil Luria and Aaron Turner increased their price target for Square from 8 to $10 per share but maintained their Neutral rating on the stock. They don’t believe the company will ever reach the level of profitability its peers enjoy, but they do say it’s a rapidly growing business. They actually expect the company’s growth to slow in the next couple of years due to competition and increased regulatory scrutiny on its lending business. They added in their report that these trends haven’t materialized yet, which is why the company was able to return a strong second quarter.
SunTrust Robinson Humphrey analysts also increased their price target for Square stock, moving from $11 to $13.
Shares of Square are up 10.58% at $11.54 as of this writing.