Square Is On The Rise

For nearly a year now, mobile payments firm Square’s (NYSE: SQ) stock has been on the rise. Its recent financial results may not have been spectacular, but the usage metrics continue to impress the market, taking its stock to record highs.

Square’s Financials

For the recently reported second quarter, Square’s revenues grew 48% over the year to $814.9 million, ahead of the Street’s expectations of $775.4 million. On an adjusted basis, net revenues came in at $385.4 million, compared with $240.4 million a year ago, and $366 million forecast by the market. On a GAAP basis, the company reported a loss of $6 million or $0.01 per share, which was significantly lower than the loss of $16 million reported a year ago. On an adjusted basis, EPS of $0.13 was also better than the market’s forecast EPS of $0.11.

By segment, Transaction-based revenues grew 30% over the year to $625.2 million and Subscription service revenues grew 127% over the year to $134.3 million. Revenues from the hardware segment grew 79% to $18.4 million in the quarter. Earlier this year, Square also ventured into the Bitcoin market by allowing customers to use its app to buy the cryptocurrency. The service is yet to make a big impact in the company’s financials. But during the last quarter, it raked in $37 million in revenues with $36.6 million in expenses.

Among other metrics, Square’s gross payment volume grew 30% to $21.4 billion. During the quarter, it facilitated $390 million of business loans, up 22% over the year. Payment volume from Instant Deposit grew to $4 billion.

For the current quarter, Square forecast gross revenues of $840-$860 million, net revenues of $407-$412 million, and EPS of $0.08-$0.10. The Street was looking for gross revenues of $808.3 million, adjusted revenues of $386 million, and EPS of $0.11. Square expects to end the current year with revenues of $3.19-$3.22 billion and EPS of $0.42-$0.46. The market was looking for revenues of $3.11 billion with EPS of $0.46.

Square’s Market Expansion

Square has been counting on the new product releases and tie-ups with other retailers and etailers to drive growth. It is already seeing strong adoption for its peer-to-peer cash transfer app CashApp, which was launched in December last year. CashApp is connected to a credit card and allows users to transfer funds to others using this credit card. It also added more services to the app by focusing on financial services for the underbanked. It allows users to store money in a virtual account and has given them a virtual routing and account number to receive direct deposits. It has also given them a debit card and allows them to store money in the form of bitcoins instead of US dollars.

CashApp has become a strong competitor for PayPal’s (NASDAQ:PYPL) service Venmo, which is yet to adapt its services to the emerging market trends. Square did not disclose the number of users for CashApp, but the service saw spending grow to $250 million in the recent quarter. The service is already ahead of Venmo in the number of downloads. According to data from SensorTower, cumulative Cash App downloads amounted to 33.5 million as of the end of July, compared with 32.9 million for Venmo.

To get better inroads into the small business segment, Square has tied up with eBay (NASDAQ:EBAY) to launch a lending program. As part of the tie-up, eBay sellers will be able to raise up to $100,000 in loans from Square. It also launched a special app called Square for Restaurants, which will focus on the restaurant industry to improve their point-of-sale offerings.

Finally, Square is expanding its geographical reach. It is currently present in only five markets of the US, Canada, Japan, the UK, and Australia. It is working on growing awareness about its products in the UK and Australian markets.

The market is pleased with Square and any doubts over Jack Dorsey managing to turnaround Square appear to have been put to rest. Its stock has grown nearly 165% over the past twelve months. It is currently trading at 52-week high levels of $72.76 with a market capitalization of $28.2 billion. It has recovered from the 52-week low of $24.22 it had fallen to nearly a year ago.