Square Inc Q3 2017 Earnings Results Sink Shares

The Square Q3 2017 earnings results were released after closing bell tonight, and the company posted adjusted earnings of 7 cents per share on $257 million in adjusted revenue and $585 million in total net revenue. Analysts had been looking for 5 cents per share in earnings on $244.6 million in adjusted revenue. In last year’s third quarter, Square reported adjusted earnings of 1 cent per share on $178 million in adjusted revenue and $439 million in total net revenue.

Square Q3 2017 earnings

Net losses narrowed to $16 million from the $32 million the company lost in last year’s third quarter. On a GAAP basis, Square Q3 2017 earnings report showed losses of 4 cents per share, versus the losses of 9 cents per share that were reported a year ago.

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Adjusted EBITDA rose 195% year over year to $34 million from $12 million a year ago. Transaction-based revenue grew 31% to $510 million and was 2.93% of gross purchase volume. Subscription and services-based revenue rose 84% to $65 million. Square’s gross payment volume rose to $17.4 billion from $13.2 billion in the year-ago quarter. The StreetAccount consensus for gross payment volume stood at $17.03 billion.

KeyBanc analyst Josh Beck boosted his price target going into the Square Q3 2017 earnings release, raising it from $35 to $40 and reiterating his Overweight rating on Square stock. He sees gross payment volume as potentially the new most important metric for the company. He predicted a beat and raise quarter for Square with an expansion of 735 basis points in Square’s EBITDA margin, versus the 500 basis points that management guided for. He also predicted that management would call for “better than mid-single-digit margin expansion” early next year.

Square raises guidance

The company guided for $585 million to $595 million in net revenue and $262 million to $265 million in adjusted revenue for the fourth quarter. It expects $34 million to $37 million in adjusted EBITDA, net losses of 7 cents to 6 cents per share, and adjusted earnings of 5 cents to 6 cents per share for the quarter.

As Beck expected, Square did increase its guidance for the fully year. Square now projects total net revenue of $2.18 million to $2.19 million and adjusted revenue of $936 million to $966 million. The company also expects adjusted EBITDA of $132 million to $135 million, net losses of 20 cents to 19 cents per share, and adjusted earnings of 24 cents to 25 cents per share.

Short-sellers profit off Square Q3 2017 earnings results

Late last month, financial analytics firm S3 Partners reported that short-sellers were holding fast to their bearish bets even though the company’s stock has rallied by about 150% year to date. At that time, S3 Director Brett Weiss estimated short interest in Square stock at 32.2 million shares and $1.1 billion at risk. He added that these numbers are year-to-date increases of 178% and 595%, respectively, and yet, just 13.4% of the float is being borrowed. He added that any “slight” misstep from the company could turn into a “windfall” for short-sellers.

Following the Square Q3 2017 earnings release, the company’s stock tumbled by as much as 2.29% to $35.87 in after-hours trading.