Square (SQ: $81, down 1%, but down 7% overnight) had an up-and-down week, which ended down after the earnings call, but the YTD is still strong at around 40%. The earnings call was a mixed bag, with revenue increasing 46% to $563 million, and EPS of $0.21 beating the Street’s expectations by $0.05. All of that is the good news.
The not-so-good news is that management adjusted its EPS guidance for 3Q19 down to $0.20, while consensus estimates were predicting 2 cents higher. It’s the same story with revenue guidance, which the company estimates will come in at $595 million for the quarter, while consensus estimates are at $599 million.
The company has a history of lowering its guidance projections, and investors are naturally skittish now that management did so again. The bright spot is that guidance didn’t come down all that much, and the company still reiterated its full-year guidance, which is what really matters here. Even if 3Q19 comes in low on revenue, as long as 2019 meets expectations, the company is in great shape.
And some more good news for Square: Gross payment volume increased nearly 25% to $27 billion, and the Cash App alone generated $260 million. Downloads for the Cash App increased over 150% for May and June, so the product is catching on with consumers. The company also posted a net increase of 28 new apps on its Seller App Marketplace, 32 new products and features, and 13 new third-party integrations. There’s a lot of growth potential in an ever-improving product line.
Some of those improvements include Square for Retail, which was recently redesigned with new features. Sellers can create a website and instantly connect their Square for Retail items, inventory, prices and data to their Square Online Store. This product upgrade enhances ease-of-use and leads to greater operational efficiency. Plus, the Square Online Store is now available for restaurants, a big market. This allows sellers to offer online ordering via their website through Square’s app. The company has also been building out its cryptocurrency team, as CEO Jack Dorsey continues to focus on this evolving marketplace. In 4Q18, Square actually surpassed Coinbase as the most-used Bitcoin trading platform.
All of these product revamps put Square in direct competition with the likes of PayPal and Shopify. Those are heavy-hitting pioneers in their respective spaces, but Square just has to make a dent in either market (or both) for the stock to react.
BMR Take: The 3Q19 guidance may have been enough to ding the stock – but that’s only a momentary blip. We’re looking long-term here, and Jack Dorsey and company have their eye on the prize (multiple prizes, actually). Square is making progress on all fronts, so that’s the compelling story, and one we’re sticking around for. We’re reiterating our $105 Target Price. Consider any dip here a buying opportunity.