Shares of Square Inc. turned positive in Thursday morning trading, after investors appeared to deem the company’s strong revenue momentum more important than its weaker-than-expected forecast.
The company on Wednesday reported adjusted second-quarter earnings of 13 cents a share on revenue of $815 million. Analysts were expecting 11 cents in EPS and revenue of $774.6 million. On an adjusted basis, net of transaction and bitcoin costs, the company posted revenue of $385 million. The company processed $21.4 billion in gross volume during the second quarter.
Shares were volatile after the results came out. They’re now up 4.1% in Thursday’s session, though they were mostly down in after-hours trading.
The portion of Square’s volume that came from larger sellers accelerated from the first quarter. Square SQ, +5.73% said volume from larger sellers, which it defines as those doing more than $125,000 in annual gross payment volume, accounted for 50% of overall volume in the second quarter. In the previous quarter, larger sellers made up 47% of overall volume.
For the third quarter, Square said to expect $407 million to $412 million in adjusted revenue and 8 cents to 10 cents a share in adjusted EPS. Analysts were expecting 13 cents in adjusted EPS.
Speaking with reporters prior to the company’s earnings call, Chief Financial Officer Sarah Friar said that the company continues to make investments across its three main focus areas: omnichannel commerce, financial services and international expansion. Square is “being front-footed on investing for growth but doing that with financial discipline,” Friar said.
She commented that Square maintained its full-year Ebitda (earnings before interest, taxes, depreciation and amortization) outlook of $240 million to $250 million and said Square faces “typical seasonality” in the third quarter. Square also left its full-year EPS forecast of 42 cents to 46 cents unchanged.
Instinet analyst Dan Dolev wasn’t phased by the outlook, writing in a note to clients: “Should investors be worried? We doubt it, since management’s focus deliberately remains to maximize the terminal value via investments and innovation.” He rates the stock a buy with an $82 price target.
International expansion remains a focus for Square, which offers its products in the U.S., Canada, the U.K., Japan, and Australia. Friar said Square is building awareness for its products overseas and also doing market development as it tries to convince businesses that they should begin accepting card-based payments. The U.K. is a “particular focus area” for Square’s international initiatives, she said.
She also discussed the company’s Cash app, which saw increasing usage during the quarter. Customers spent $250 million on prepaid Cash cards during the second quarter, and Friar said the product is a “typical prepaid card in terms of economics” and interchange fees.
The company said it generated $37 million in bitcoin revenue during the quarter and incurred $36.6 million in bitcoin costs by enabling Cash app users to buy and sell the cryptocurrency. “We’re not trying to push on the monetization of bitcoin today,” Friar said. “The costs are effectively costs for us to go into the market and buy bitcoin.” There’s a small spread that accounts for the fact that bitcoin BTCUSD, +0.76% is volatile and its price may change between when a consumer executes a transaction and when the company buys bitcoin in the market.
“While all products have momentum, we believe that Cash and Capital related services are driving the incremental growth,” Jefferies analyst John Hecht wrote, referring also to the company’s business-loan program. He rates the stock a hold with a $63 price target.
Square shares are up 164% over the past 12 months, while the S&P 500 SPX, -0.13% has gained 13%.