Square falls after reporting slower growth and weak Q1 earnings guidance

Square reported fourth-quarter earnings that beat analysts’ expectations on Wednesday. But guidance for the first quarter and revenue growth were weaker than expected.

Here’s how the company did compared with Refinitiv consensus estimates:

  • Earnings: 14 cents per share vs. 13 cents per share, forecast by Refinitiv
  • Adjusted revenue: $464 million vs. $454 million, forecast by Refinitiv

Shares fell as much as 7 percent following Square’s quarterly report.

The company brought in $464 million of adjusted revenue for the fourth quarter, a 64 percent rise year over year. Square reported adjusted earnings per share of 14 cents, a 6 cent bump from a year earlier.

The San Francisco-based company, run by Twitter CEO Jack Dorsey, issued earnings-per-share guidance for the first quarter between 6 and 8 cents. Wall Street was looking for 11 cents. Its revenue guidance for the first quarter was in line with analysts’ expectations.

Slower growth also weighed on Square’s stock price. The company’s adjusted revenue grew 53 percent year over year, excluding acquisitions — down from 56 percent in the third quarter. Wall Street had been expecting roughly 60 percent revenue growth year over year.

Subscription and services-based revenue, a metric analysts watch closely, was a bright spot. The company reported $194 million in that portion of revenue, 144 percent jump year over year. For the full year, Square notched $592 million in subscription and services-based revenue, up 134 percent year over year.

Square’s peer-to-peer Cash App had another break-out quarter with more than 15 million monthly active customers in December 2018, doubling from a year earlier.

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Square CEO Jack Dorsey told CNBC in a statement that more than half of the company’s adjusted revenue came from the Cash App. A “network effect” of friends and families helped growth in downloads, he later said on a call with analysts.

“People are utilizing the money they have in Cash App with friends, families, and landlords causing another download, and another, into the network,” Dorsey said.

The payment company announced it hired Amrita Ahuja as its new chief financial officer in January. Wednesday marks her first earnings call in the position, filling former CFO Sarah Friar’s void after she stepped down last year. Ahuja held the same position at Blizzard Entertainment, a division of Blizzard.

On the earnings call, Dorsey highlighted Square’s debit card for businesses that launched in January. It gives Square merchants immediate access to sales made on the payment system, and added to the company’s growing suite of banking products. The card enables someone to start a business, “without even having to go to a bank” which Dorsey called “pretty powerful, pretty profound and really cool.”

“Square Card has been another highlight over the past three months,” he said. “This is a way for us to continue to serve under-served and un-banked sellers so that they can start a business without even going to a bank.”

Dorsey said 40 percent of merchants didn’t have a business debit card before using the Square Card. The company has increasingly moved into traditional banks’ turf, mostly by servicing small businesses. It also issues loans through Square Capital and refiled its application for a bank charter in December. An approval would allow it to take federally insured customer deposits.

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“For the year ahead we continue to focus on three things and we will continue to strengthen our omni-channel offering,” Dorsey said. “That means that we add strength to in-person payments to mobile payments and also to online. We’re really excited about everything we’re doing in financial services.”

The stock has rallied 40 percent this year, and more than 70 percent year over year. Square shares were slightly higher ahead of the earnings announcement, trading near $78.95.

“While 4Q was not something to write home about, the SQ story is likely far from over as new products and services can provide a second wind to growth as the year progresses,” Nomura Instinet analyst Dan Dolev said in a note to clients Wednesday. “We expect a negative stock reaction given somewhat underwhelming results.”

— CNBC’s Deidre Bosa contributed reporting.



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