Square Inc (SQ) Q418 Earnings Benefit From Instant Deposit

Square Inc (SQ) Q418 Earnings Benefit From Instant Deposit
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Square Inc (NYSE:SQ) reported stronger-than-expected 4Q18 revenue growth, benefiting from robust Instant Deposit, SQ Cash, Caviar and Capital growth. Below are comments from analysts providing a first look on the earnings and 2019 guidance.

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Analysts’ Comment on Square’s 4Q Earnings

William Braid

December results were relatively in line, but still impressive; 2019 guidance was mixed, but is likely conservative. Revenue guidance for 2019 was largely in-line, but adjusted EBITDA guidance for the seasonally soft March quarter was 30% below the Street consensus, while EBITDA guidance for the full year was 2% below the Street. Internal execution remains strong, and innovation continues to drive growth, in our view; shares trade at 16.3 times 2019 and 12.5 times 2020 adjusted revenue.

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SQ reported robust top-line adj. net rev of $464M, representing 64% y/y growth, ~4% ahead of JEFe/Street at $446M/$453M, a slight deceleration from 67% last quarter. Total GPV of $23.0B represented 28% growth (vs. 3Q18 of 29.4%, and JEFe/Street at 29.5%/28.9%). Transaction margin improved y/y to 1.08% vs. 1.07% in 4Q18.


Results: subscription/services contributes to beat. SQ reported GPV growth in line with our model while adjusted revenue and EBITDA came in above our estimates and consensus. Revenue outperformance was driven by subscription and services, which grew 112% on an organic basis (excluding Weebly and Zesty) with particular momentum in Instant Deposit, Cash Card, Caviar, and Square Capital. Subscription and services revenue came in at $194M vs. consensus at $180M.

Mizuho Securities

We are increasing our PT and raising our revenue and EPS estimates following 4Q outperformance and guidance calling for +45% organic revenue growth in 2019 (vs 54% organic in 2018). As a reminder, the company entered 2018 with adjusted revenue guidance of 34%; they posted 53.6% organic. The company is entering 2019 with impressive growth at scale, and a litany of ancillary products with high incremental margins.

Morgan Stanley

SQ delivered another quarter of stronger-than-expected revenue growth, driven by growth Square Capital, Instant Deposit, and Cash Card etc.. GPV and transaction revenue growth was roughly in line, which was likely disappointing for some investors, who saw room for upside, given strong consumer spend in the quarter and SQ's limited FX exposure, unlike many other merchant acquirers. While strong growth in subscription and software related services is positive, we would prefer to see upside coming from GPV (we think that is better quality revenue than Instant Deposit or Square Capital).


SQ just reported 4Q results and provided FY19 guidance. While results were strong on the top line, and ahead of the high-end of the guidance range, the deceleration in adj. revenue organic growth, decelerating GPV from large sellers, and muted FY guidance below consensus may awaken the bears.

While 4Q was not something to write home about, the SQ story is likely far from over as new products and services can provide a second wind to growth as the year progresses. We expect a negative stock reaction given somewhat underwhelming results.


Square delivered modest upside 4Q results as adjusted revenue grew 64% Y/Y (53% organic) with EPS of $0.14 (vs. our/Street's $0.14/0.13 estimates). Transaction Profit grew 29% Y/Y (vs. our +31% estimate) while Subscription & Svcs adj. revenue grew an impressive 150% (~119% organic), benefiting from robust Instant Deposit, SQ Cash, Caviar and Capital growth. Notably, Capital volume growth accelerated to 55%. EBITDA margin expanded 290bps Y/Y and was in line with our estimate despite incremental investments.

RBC Capital Markets

Square reported Q4/18 adjusted net revenue of $464M, up 64% y/y (and $7M above our forecast) a slight deceleration from the 68% posted in Q3/18; adjusted EBITDA was $81M ($1M below our forecast). While transaction revenue continues to run essentially in line with GPV growth (up 27% and 28% y/y, respectively), Subscription & services revenues meaningfully outperformed, up 144% y/y (155% last quarter), with the Cash Card & app, Instant Deposit, Capital and Caviar driving the bulk of the growth.


We reiterate our Hold and raise our PT to $75 (47x C20E EBITDA), from $61. We acknowledge Square is a small co against a huge global Processing TAM, and its disruptive, next-gen tech which should support impressive rev growth. However, it is facing growing competition, in our opinion, as it enters more crowded markets and others offer new capabilities. We also believe it will be hard pressed to exceed consensus estimates as meaningfully as in the past.

Wells Fargo

Growth metrics at SQ remain strong across the board with revenue/EPS of $464M/$0.14 exceeding estimates of $453M/$0.13 but ultimately we believe the market will be focused on slightly lower-than-expected gross payment volume (GPV) and 1Q EBITDA
margins, likely limiting upside potential in the shares. In aggregate, we believe the Square story remains quite strong with consolidated organic revenue growth of over 50%, solid GPV growth (+28%) and a clear path to attractive revenue growth as the addressable market and product road map evolves.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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