Square’s per-share earnings were a touch higher than expected.
Courtesy Square
Square issued a mixed earnings report on Thursday, with one analyst saying the results “lacked pizazz.” Several Wall Street analysts lowered their profit forecasts for this calendar year, but the overall sentiment on the stock still appears upbeat.
Analysts argue that Square (ticker: SQ) has plenty of new growth drivers, including more crypto-related products and services. Also on the list is Square’s planned acquisition of the “buy now pay later” company Afterpay, scheduled to close in the first quarter of 2022.
Square’s third-quarter results weren’t great. The company reported total gross profit of $1.13 billion, slightly missing consensus forecasts for $1.15 billion. Adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, came in at $233 million, beating forecasts for $217 million.
Square reported $0.37 in earnings per share, missing forecasts by a penny.
A key issue was gross profit growth for Square’s Cash App. Based on two-year trends, growth decelerated from a compound annual rate of 128% in the second quarter to 104% in the third quarter, according to Mizuho Securities analyst Dan Dolev. The deceleration was due to slower revenue growth from Bitcoin, which users buy through the Cash App, as well as weaker growth in software and services, and transaction-based revenue, Dolev said.
While the overall result “lacked pizazz,” in his view, there were reasons to continue recommending the stock, including strong inflows of money into Cash App. The company now offers mobile-check and paper-money deposits into the app. People can add cash through a card loaded up at retailers like Walgreens and Family Dollar .
Square is also marketing Cash App to kids, aiming to get it to teenagers age 13-17, a market of 20 million people in the U.S. And Cash App should benefit from transaction growth as Square integrates Afterpay, which lets people make biweekly or monthly installment payments on individual purchases.
Square is getting deeper into crypto, too. Cash App has become a digital wallet for Bitcoin. Users bought and sold more than $1.8 billion of the currency in the quarter, providing Square with a 2% cut in related fees. The company is ramping up investment in crypto-related products and services, launching a business unit called TBD that will include a platform for decentralized-finance, or DeFi, services and more Bitcoin-related products.
“We’re going to be building a hardware wallet, we’re exploring Bitcoin mining, a consumer device to mine Bitcoin at home or in a business for our Seller businesses,” Square CEO Jack Dorsey said on a call with analysts. The company plans to release a white paper on the project on Nov. 19, he added.
Nonetheless, several analysts trimmed their forecasts. Dolev cut his full-year Ebitda outlook to $968 million from $1 billion. MoffettNathanson analyst Lisa Ellis said she expects EPS of $1.57 this year, down from $2.07 previously. She also cut her 2022 estimates.
But both analysts reiterated Buy ratings on the stock, as did several others. Wolfe Research’s Darrin Peller argued that investors should use a dip in price to accumulate shares, writing that the quarter should be viewed as “a clearing event” and “buying opportunity.”
Susquehanna Financial analyst James Friedman also reiterated a “positive” rating on the stock, with a target of $300 for the price.
Square’s stock hasn’t been a winner for months, though. It is down 11% since early August against a 7.6% gain for the Nasdaq Composite index. The stock was underperforming on Friday; shares of the payment company were down 2.2% to around $241, while the Nasdaq Composite Index was ahead 0.6%.
Write to Daren Fonda at [email protected]
