Square Posts Strong Third Quarter Results
Author: Ray Ga Ming Li, Published: November 1, 2016 at 8:30pm, Category: Earnings Review
Square Inc (NYSE:SQ) reported strong third quarter results today and increased full-year guidance for revenue and EBITDA. The company announced third quarter Gross Payment Volume (GPV) of $13.2B up 39% Year-over-Year (YoY), adjusted revenue of $178 up 51% YoY, adjusted EBITDA of $12M up from a loss of $16M last year, and an adjusted EBITDA margin of 7%. Management attributed the improvement this quarter to strength in the cash advance lending business which was up 70% YoY, and growth in GPV from large sellers (those with more than one retail store), which was up 55% YoY.
Other key highlights from the 3Q16 earnings release include the following:
• Total GPV growth of 39% YoY (+6% QoQ), over 4x Visa’s U.S. bankcard volume growth.
• 4Q16 adjusted revenue expectations revised to $182M-$185M.
• Large-sellers now represents 43% of GPV up from 37% in the prior year.
• Starbucks transaction revenue declined 78% QoQ. Management expects earnings from the Starbucks partnership to end by 4Q16.
• Software and Data Product revenue increased 19% QoQ (vs. 2Q16 +25% QoQ) to $35M.
• Loan loss rates remain stable at 4%.
Management raised estimates for FY2016 and FY2017:
• Adjusted Revenue revision to $677M-$680M from $655M-$670M
• Adjusted EBITDA revision to $31M-$33M from $18M-$24M
• Management expects mid-single-digit EBITDA margin expansion heading into 2017 (new disclosure).
Our Square Inc. consensus-based model derives total revenue by projecting future earnings based on GPV estimates and segment margin forecasts. The model is sensitive to incremental changes in the growth rates of each segment and assumptions for transaction-based revenue, which currently represents ~86% of the company’s total revenue. Currently our 12-month P/EBITDA-based target price is $11.75. Click here to download our Square Inc Earnings Model.
Source: Management’s guidance from the 3Q16 Earnings call on Nov 1, 2016.
Other key highlights from the 3Q16 earnings release include the following:
• Total GPV growth of 39% YoY (+6% QoQ), over 4x Visa’s U.S. bankcard volume growth.
• 4Q16 adjusted revenue expectations revised to $182M-$185M.
• Large-sellers now represents 43% of GPV up from 37% in the prior year.
• Starbucks transaction revenue declined 78% QoQ. Management expects earnings from the Starbucks partnership to end by 4Q16.
• Software and Data Product revenue increased 19% QoQ (vs. 2Q16 +25% QoQ) to $35M.
• Loan loss rates remain stable at 4%.
Management raised estimates for FY2016 and FY2017:
• Adjusted Revenue revision to $677M-$680M from $655M-$670M
• Adjusted EBITDA revision to $31M-$33M from $18M-$24M
• Management expects mid-single-digit EBITDA margin expansion heading into 2017 (new disclosure).
Our Square Inc. consensus-based model derives total revenue by projecting future earnings based on GPV estimates and segment margin forecasts. The model is sensitive to incremental changes in the growth rates of each segment and assumptions for transaction-based revenue, which currently represents ~86% of the company’s total revenue. Currently our 12-month P/EBITDA-based target price is $11.75. Click here to download our Square Inc Earnings Model.
Source: Management’s guidance from the 3Q16 Earnings call on Nov 1, 2016.
The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions. Click here to visit Ray's contributor page.
