What to look for in SQ


Key points to remember

  • Analysts estimate adjusted EPS of $ 0.37 compared to $ 0.34 in the third quarter of fiscal 2020.
  • The volume of gross payments is expected to grow year-over-year at the second fastest pace in at least 18 quarters.
  • Revenue is expected to show a healthy year-over-year gain, but slower than in the past five quarters.

Square Inc. (SQ) recently took an important step in expanding into the burgeoning installment loan market, focused on a new generation of younger clients, by announcing the $ 29 billion acquisition of the fintech company Australian Afterpay. Installment loans, which allow customers to “buy now, pay later,” have already been a key driver of Square’s growth. Now, that growth is likely to accelerate as Afterpay is integrated into Square’s popular Cash App ecosystem.

Investors will be watching closely how installment loans fuel and fuel Square’s growth when it releases third-quarter fiscal 2021 financial results after market closes on November 4. Analysts expect the company to report modest year-over-year adjusted earnings per share (EPS) growth from the past four quarters. Revenue is expected to grow at a sustained pace, but at the slowest pace in six quarters.

Investors will also focus on Square’s gross payment volume (GPV), a key metric that provides a holistic picture of transaction volumes. This is Square’s primary indicator of the total dollar amount traded through its payment ecosystems. Analysts believe Square’s GPV will grow to its second fastest quarterly rate in at least four years.

Square stock has consistently outperformed the market over the past year, although its performance has been marked by both strong rises and falls. Square stocks climbed in February and April 2021, followed in both cases by steep declines. The stock hit its highest level of last year in early August, following the company’s fiscal 2021 second quarter earnings report. Since then the stock has drifted lower. Square has now delivered a rolling one-year total return of 60.4%, well ahead of the S&P 500’s 39.9% total return.

Source: TradingView.

Square’s earnings history

In the 11 quarters leading up to the COVID-19 pandemic, Square posted dramatic adjusted BPA gains. During this period, the slowest growth rate was 38.6% year-on-year in the first quarter of fiscal 2018. The company was hit hard at the start of the pandemic, posting an adjusted loss per share in the first quarter of fiscal 2020 and a year-over-year decline in the second quarter of this year. . Since then, Square’s Adjusted EPS rebounded sharply in all four quarters until the second quarter of fiscal 2021, when Adjusted EPS rose 263.8%. Now analysts expect Square’s adjusted EPS growth to slow significantly to 9.2% year-on-year in the third quarter of fiscal 2021. It would be the slowest growth rate in at least 18 quarters .

Square continued to post strong revenue gains despite the pandemic. Revenue growth has hovered at or just below 50% in each quarter of fiscal 2019 before slowing slightly to 44.0% in the first quarter of fiscal 2020. Since then, Square’s revenue growth has grown. is considerably accelerated. It has more than doubled year-on-year in each of the past four quarters through to the second quarter of fiscal 2021. Analysts expect Square’s revenue to grow at a healthy 46.1% pace in the year. third quarter 2021, but at a significantly slower pace than in previous quarters.

Square key statistics
Estimate for the third quarter of fiscal 2021 Q3 FY 2020 Q3 FISCAL 2019
Adjusted earnings per share $ 0.37 $ 0.34 $ 0.25
Income (B) $ 4.4 $ 3.0 $ 1.3
Gross payment volume (B) $ 44.7 $ 31.7 $ 28.2

Source: Visible alpha

The key metric

As mentioned above, investors will also be focusing on Square’s GPV, a key metric that tracks the total dollar amount, net of refunds, of all card payments processed by sellers using the payment ecosystem. ‘business. It includes peer-to-peer payments as well as transactions with merchants who use Square’s mobile payment app. Square charges transaction fees on these gross payments and these fees are a major source of revenue. Transaction fees are usually calculated as a percentage of the total amount of the transaction processed. The higher the GPV, the more Square is able to generate transaction-based revenue.

GPV also provides an indication of the number of users the company has on its platform. If Square can attract more users to its core payments ecosystem, then it can drive more traffic to its other businesses, such as operations management software company Stitch Labs LLC and website builder platform. Weebly Inc. It will also be able to offer its digital payment services to customers of these companies. Square’s planned Afterpay purchase would also play a similar role in enhancing Square’s ecosystem.

Square’s GPV growth followed a slow trend of deceleration prior to the pandemic, from a low of 30 in FY 2017 to a high of 20 at the end of FY 2018 and mid-20s at the end. of fiscal year 2019. GPV growth fell to 14.0% in Q1 of fiscal 2020, then a drop of 14.9% in Q2 as the impact of the pandemic widened. This trend reversed in the third and fourth quarters of fiscal 2021, but at a slow pace. Then, growth accelerated significantly in the first and second quarters of fiscal 2021, as the volume of gross payments jumped 87.8% in the second quarter. Analysts also expect strong growth in the third quarter as GPV grows 40.1%. While slower than the second quarter, it would still be the second highest GPV growth rate in at least 18 quarters for the third quarter of fiscal 2021.

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