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Square (SQ) Q3 Earnings Lag Estimates, Revenues Rise Y/Y

Square's (SQ) third-quarter results benefit from solid momentum across the Cash App and seller ecosystems.

This story originally appeared on Zacks

Square, Inc. SQ reported third-quarter 2021 adjusted earnings of 37 cents per share, which rose 8.8% year over year but declined 43.9% sequentially. Further, the figure missed the Zacks Consensus Estimate by 2.6%.

Net revenues of $3.84 billion improved 27% from the prior-year quarter.

However, the figure declined 17.9% from the previous quarter and missed the Zacks Consensus Estimate of $4.38 billion.

Year-over-year revenue growth was driven by strong momentum across the Cash App ecosystem, contributing $2.39 billion to net revenues in the reported quarter, up 16% year over year.

Solid momentum across bitcoin also contributed. Further, strong growth in transaction, subscription and hardware revenues contributed generously to the results.

Square witnessed solid traction across the seller ecosystem, generating $1.39 billion of revenues, up 44% year over year.

Additionally, accelerating gross payment volume (GPV) drove the results.

However, uncertainties related to the pandemic remain concerning.

Nevertheless, the company’s strengthening momentum across the seller ecosystem and Cash App is expected to act as tailwinds in the days ahead.

- Zacks

Square, Inc. Price, Consensus and EPS Surprise

Square, Inc. Price, Consensus and EPS Surprise  

Square, Inc. price-consensus-eps-surprise-chart | Square, Inc. Quote

Gross Payment Volume

GPV in the third quarter amounted to $45.4 billion, up 43% from the year-ago quarter. This was driven by strength across the seller ecosystem. Notably, seller GPV accounted for 92% of the total GPV in the third quarter. Seller GPV was up 45% year over year.

The strong performance of the Cash App, which accounted for $3.7 billion of the overall GPV (8%), remained a positive. The figure increased 27% year over year.

Square continued to experience improvement in its card-present volumes in the reported quarter. Card-present GPV was up 55% from the year-ago quarter.

The card-not-present GPV witnessed year-over-year growth of 29% in the third quarter. Robust online channels, including Square Online, Invoices, Virtual Terminal and eCommerce API, contributed to the upside.

Top-Line Details

Transaction (34% of net revenues): The company generated transaction revenues of $1.3 billion, up 40% year over year. Strong seller ecosystem accounted for $1.19 billion of transaction revenues, up 41% year over year. The robust performance of the Cash App contributed $103 million to transaction revenues, up 28% year over year, owing to the rising number of transactions as well as business accounts.

Subscription and services (18% of revenues): The company generated $695 million in revenues from the category, jumping 55% from the year-ago quarter. The improvement can be attributed to a strong performance by the Cash App, which contributed $475 million to the category’s top line.

The figure was up 34% from the year-ago quarter. Seller ecosystem contributed $162 million to subscription and services revenues, up 74% year over year.

Hardware (1% of revenues): Square generated revenues of $37 million from the business, up 36% year over year. This was driven by strong unit sales of hardware devices like Square Register and Square Terminal.

Bitcoin (47% of revenues): The company generated revenues of $1.82 billion from the category, up 11% year over year. Square continued to benefit from the bitcoin space, driven by the increasing adoption of the Cash App.

Operating Details

Per management, gross profit grew 43% from the year-ago quarter to $1.13 billion. Further, gross margin expanded 330 basis points (bps) year over year to 29.5%.

Adjusted EBITDA was $233 million in the reported quarter, up 28% year over year.

Operating expenses were $1.11 billion, ringing 49% from the prior-year quarter.

Product development expenses were $367 million, up 61% year over year primarily due to rising headcount and personnel costs in engineering, data science and design teams.

General and administrative expenses were $267 million, up 74% from the prior-year quarter. This was primarily caused by finance, legal, compliance and support personnel costs, and expenses associated with the pending Afterpay buyout.

Sales and marketing costs were $408 million, up 17% year over year due to an increase in Cash App marketing expenses and a hike in advertising, personnel and other costs.

Operating income was $22.9 million, down 53.4% year over year.

Balance Sheet

As of Sep 30, 2021, the cash and cash equivalent balance was $4.5 billion, down from $4.6 billion as of Jun 30, 2021.

Short-term investments were $868.8 million in the reported quarter, down from $1.01 billion in the previous quarter.

Long-term debt was $4.7 billion compared with $4.8 billion in the previous quarter.

Zacks Rank & Stocks to Consider

Currently, Square has a Zacks Rank #3 (Hold).

Other better-ranked stocks in the broader technology sector include Advanced Micro Devices AMD, PerkinElmer PKI and Mimecast Ltd. MIME. While Advanced Micro Devices sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Mimecast carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Advanced Micro Devices, PerkinElmer, and Mimecast are currently projected at 46.2%, 41.7%, and 35%, respectively.

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