Square Stock Is Down. Earnings Were Strong, but Expenses Will Rise.
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Payments company Square reported revenue and profits that beat Wall Street's estimates. The company also said comparisons will become tougher, and expenses will rise.
Courtesy SquareSquare ‘s revenue and profits beat Wall Street’s forecasts in the first quarter as it processed more than $3.5 billion in Bitcoin transactions. But, coupled with the company’s expectations for tougher comparisons and higher expenses, the results may not be good enough to boost the stock.
Square (ticker: SQ) reported total revenue of $5.06 billion, coming in well ahead of Wall Street’s consensus estimate for $3.3 billion. A big lift came from Bitcoin transactions amounting to $3.5 billion, up from $306 million a year ago.
Gross profits of $964 million trounced the $831 million consensus estimate, and were up 79% year over year.
Square’s transaction-based revenue beat forecasts at $960 million, up 27% year over year, and ahead of forecasts for $865 million. Almost all of that, or $868 million, was processing payments for merchants through Square’s Seller platform, up 19% year over year. The Seller ecosystem overall delivered revenue of $1 billion and $468 million in gross profit, rising 19% and 32% over the March quarter in 2020.
Gross payment volume hit $33.1 billion, beating the consensus forecast for $30.4 billion.
Square’s Cash App for peer-to-peer and other types of payments also continued to grow rapidly. The app generated $4 billion of revenue and $495 million of gross profit, Square said, though much of it was due to Bitcoin transactions processed through app. Without Bitcoin, Cash App revenue was $529 million, up 139% year over year.
Cash App’s $3.5 billion of Bitcoin revenue didn’t deliver much profit since Square is essentially a broker and digital wallet for the cryptocurrency. Gross profit on Bitcoin only amounted to $75 million, the company said.
Square also invested $170 million in Bitcoin in February, on top of buying $50 million in the fourth quarter of 2020. Overall, the company now has $472 million in Bitcoin, and has made $272 million in total on the investment (though it booked a $20 million Bitcoin impairment in the quarter, and took a $29 million hit in mark-to-market valuation for its investment in DoorDash (DASH)).
Overall, Square’s bottom line came in well ahead of estimates. Wall Street was looking for $105 million in adjusted Ebitda, or earnings before interest, taxes, deprecation, and amortization. Square delivered $236 million.
Adjusted earnings of 41 cents a share beat consensus forecasts for 17 cents, according to FactSet.
But Square also said that gross profit is slowing from a year ago because of government stimulus payments in April 2020, making comparisons tougher in the second quarter this year. Also, the company raised guidance for operating expenses, and sees them increasing by $1 billion this year, ahead of forecasts for an $800 million-$900 million increase.
Square stock is down $7.91, or 3.4%, to $224 in after-hours trading, after falling 4.3% in the regular session. The stock was up 1.9% for the year before the close on Thursday.
Write to Daren Fonda at daren.fonda@barrons.com