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Why Is Square (SQ) Down 10% Since Last Earnings Report?
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It has been about a month since the last earnings report for Square (SQ - Free Report) . Shares have lost about 10% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Square due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Square Reports Q4 Earnings
Square reported fourth-quarter 2020 adjusted earnings of 32 cents per share, beating the Zacks Consensus Estimate by 39.1%. The bottom line also surged 39.1% from the year-ago quarter. However, the figure declined 5.9% sequentially.
Net revenues of $3.16 billion surpassed the Zacks Consensus Estimate of $3.14 billion. Further, the top line improved 141% and 4.1% from the prior-ago quarter and previous quarter, respectively.
The top-line growth was driven by a strong momentum across the Cash App ecosystem that contributed $2.2 billion to net revenues during the reported quarter, up 502% year over year.
Moreover, solid momentum across Bitcoin was the key catalyst. Without bitcoin revenues, net revenues would amount to $1.4 billion, up 23% year over year.
Further, growing traction across Cash Boost instant rewards program, which bolstered the adoption rate of Cash Card, benefited the results. Additionally, accelerating transaction, subscription and hardware revenues contributed to the results.
Additionally, Square witnessed a solid traction across the seller ecosystem, which generated $987.1 million of revenues, up 5.3% year over year. Further, accelerating gross payment volume (GPV) drove the results.
However, uncertainties related to the COVID-19 pandemic remain concerns.
Nevertheless, the company’s strengthening momentum in online channels and growing card-not-present GPV are expected to act as tailwinds in the days ahead.
Further, a strong acquisition of net-new transacting active Cash App customers is likely to continue driving the company’s top line.
Gross Payment Volume
GPV in the fourth quarter amounted to $32.02 billion, up 12% from the year-ago quarter. This was driven by strength across the seller ecosystem, which accounted for 92% of the total GPV in the reported quarter.
Moreover, strong momentum across omnichannel and online sellers remained a positive, which contributed more than half of the seller GPV during the fourth quarter.
Notably, seller GPV was up 6% year over year. However, the company witnessed sluggishness in the seller GPV in November 2020 due to regional restrictions.
Further, the card-not-present GPV witnessed year-over-year growth of 26% in the fourth quarter. Robust online channels including Square Online, Invoices, Virtual Terminal, and eCommerce API contributed to this upside.
Apart from seller ecosystem, Cash App business GPV soared 229% year over year and accounted for 8% of the total GPV in the quarter review.
Top-Line Details
Transaction (29.4% of net revenues): The company generated transaction revenues of $929.01 million, up 12% year over year. Robust Cash App which generated $72 million of transaction-based revenue (up 234% year over year) contributed well. Moreover, increasing number of business accounts and transactions per business account remained positive.
Subscription and services (14.2% of revenues): The company generated $449.4 million revenues from this category, surging 60% from the year-ago quarter. This improvement can be attributed to a strong performance by Cash App, which contributed $344 million to the category’s top line. The figure was up 113% from the year-ago quarter. This was driven by transaction fees from Cash Card and Instant Deposit.
Hardware (0.8% of revenues): Square generated revenues worth $24.4 million from this business, up 9% year over year. This was driven by strong unit sales of hardware devices. The company witnessed improved sales of contactless devices like Square Register and Square Terminal in the reported quarter.
Bitcoin (55.6% of revenues): The company generated revenues of $1.8 billion from this category, up significantly from $177.6 million. Square continued to benefit from the bitcoin space, driven by the increasing adoption of Cash App.
Operating Details
Per management, gross profit grew 52% from the year-ago quarter to $804 million.
Adjusted EBITDA was $185 million, up 57% on a year-over-year basis.
Operating expenses came in at $759 million, jumping 49% from the prior-year quarter.
Product development expenses were $253 million, up 46% year over year, primarily due to the rising engineering, data science and design personnel costs.
General and administrative expenses were $159 million, up 35% from the prior-year quarter. This was primarily due to finance, legal and support personnel costs.
Further, sales and marketing costs were $329 million, up 77% year over year due to increase in Cash App marketing expenses and hike in advertising, personnel, and other costs.
Balance Sheet
As of Dec 31, 2020, cash and cash equivalents balance was $3.2 billion, up from $2.1 billion as of Sep 30, 2020.
Short-term investments were $695.1 million in the reported quarter, down from $762.4 million in the previous quarter.
Long-term debt was $2.6 billion, increasing from $1.8 billion in the previous quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -749.35% due to these changes.
VGM Scores
At this time, Square has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Square has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Square (SQ) Down 10% Since Last Earnings Report?
It has been about a month since the last earnings report for Square (SQ - Free Report) . Shares have lost about 10% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Square due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Square Reports Q4 Earnings
Square reported fourth-quarter 2020 adjusted earnings of 32 cents per share, beating the Zacks Consensus Estimate by 39.1%. The bottom line also surged 39.1% from the year-ago quarter. However, the figure declined 5.9% sequentially.
Net revenues of $3.16 billion surpassed the Zacks Consensus Estimate of $3.14 billion. Further, the top line improved 141% and 4.1% from the prior-ago quarter and previous quarter, respectively.
The top-line growth was driven by a strong momentum across the Cash App ecosystem that contributed $2.2 billion to net revenues during the reported quarter, up 502% year over year.
Moreover, solid momentum across Bitcoin was the key catalyst. Without bitcoin revenues, net revenues would amount to $1.4 billion, up 23% year over year.
Further, growing traction across Cash Boost instant rewards program, which bolstered the adoption rate of Cash Card, benefited the results. Additionally, accelerating transaction, subscription and hardware revenues contributed to the results.
Additionally, Square witnessed a solid traction across the seller ecosystem, which generated $987.1 million of revenues, up 5.3% year over year. Further, accelerating gross payment volume (GPV) drove the results.
However, uncertainties related to the COVID-19 pandemic remain concerns.
Nevertheless, the company’s strengthening momentum in online channels and growing card-not-present GPV are expected to act as tailwinds in the days ahead.
Further, a strong acquisition of net-new transacting active Cash App customers is likely to continue driving the company’s top line.
Gross Payment Volume
GPV in the fourth quarter amounted to $32.02 billion, up 12% from the year-ago quarter. This was driven by strength across the seller ecosystem, which accounted for 92% of the total GPV in the reported quarter.
Moreover, strong momentum across omnichannel and online sellers remained a positive, which contributed more than half of the seller GPV during the fourth quarter.
Notably, seller GPV was up 6% year over year. However, the company witnessed sluggishness in the seller GPV in November 2020 due to regional restrictions.
Further, the card-not-present GPV witnessed year-over-year growth of 26% in the fourth quarter. Robust online channels including Square Online, Invoices, Virtual Terminal, and eCommerce API contributed to this upside.
Apart from seller ecosystem, Cash App business GPV soared 229% year over year and accounted for 8% of the total GPV in the quarter review.
Top-Line Details
Transaction (29.4% of net revenues): The company generated transaction revenues of $929.01 million, up 12% year over year. Robust Cash App which generated $72 million of transaction-based revenue (up 234% year over year) contributed well. Moreover, increasing number of business accounts and transactions per business account remained positive.
Subscription and services (14.2% of revenues): The company generated $449.4 million revenues from this category, surging 60% from the year-ago quarter. This improvement can be attributed to a strong performance by Cash App, which contributed $344 million to the category’s top line. The figure was up 113% from the year-ago quarter. This was driven by transaction fees from Cash Card and Instant Deposit.
Hardware (0.8% of revenues): Square generated revenues worth $24.4 million from this business, up 9% year over year. This was driven by strong unit sales of hardware devices. The company witnessed improved sales of contactless devices like Square Register and Square Terminal in the reported quarter.
Bitcoin (55.6% of revenues): The company generated revenues of $1.8 billion from this category, up significantly from $177.6 million. Square continued to benefit from the bitcoin space, driven by the increasing adoption of Cash App.
Operating Details
Per management, gross profit grew 52% from the year-ago quarter to $804 million.
Adjusted EBITDA was $185 million, up 57% on a year-over-year basis.
Operating expenses came in at $759 million, jumping 49% from the prior-year quarter.
Product development expenses were $253 million, up 46% year over year, primarily due to the rising engineering, data science and design personnel costs.
General and administrative expenses were $159 million, up 35% from the prior-year quarter. This was primarily due to finance, legal and support personnel costs.
Further, sales and marketing costs were $329 million, up 77% year over year due to increase in Cash App marketing expenses and hike in advertising, personnel, and other costs.
Balance Sheet
As of Dec 31, 2020, cash and cash equivalents balance was $3.2 billion, up from $2.1 billion as of Sep 30, 2020.
Short-term investments were $695.1 million in the reported quarter, down from $762.4 million in the previous quarter.
Long-term debt was $2.6 billion, increasing from $1.8 billion in the previous quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -749.35% due to these changes.
VGM Scores
At this time, Square has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Square has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.