Square Projects Profit That Falls Short on Greater Spending

(Bloomberg) -- Square Inc. gave an earnings forecast in the current quarter that missed analysts’ estimates, amid increasing spending on new products beyond its central payments processing business. The profit projection overshadowed a strong sales outlook, sending shares down in extended trading.

Key Insights
  • Adjusted earnings will be 12 cents to 13 cents a share in the fourth quarter, the San Francisco-based company said Wednesday in a statement. Adjusted revenue will be $446 million to $451 million. Analysts projected 15 cents a share on sales of $440.6 million, according to data compiled by Bloomberg.
  • Adjusted earnings before interest, taxes, depreciation and amortization will be $75 million to $80 million, Square said. Analysts on average estimated $80.1 million.
  • Adjusted revenue rose 68 percent to $431 million in the third quarter.
  • Operating expenses, excluding certain items, rose 56 percent in the period from a year earlier and represented 67 percent of adjusted revenue, Square said. The company spent more across all categories, including on hiring and advertising.
  • Chief Financial Officer Sarah Friar said sales and marketing were important areas of spending, driven largely by the company’s peer-to-peer money transfer app, called Cash App.
  • The report is the last for Friar, who will be stepping down to become the chief executive officer of Nextdoor.com Inc. She has been credited with helping expand Square’s business and giving Chief Executive Officer Jack Dorsey the flexibility to run the company and Twitter Inc. Square’s stock fell 11 percent the day after her departure was announced in October and 26 percent for the month.

Market Reaction

  • Shares fell 3.5 percent to $79.80 in extended trading at 6:10 p.m. in New York, after earlier dropping as much as 8.6 percent. The stock has more than doubled this year.
  • “Pretty solid quarter, but a tough market environment for tech stocks these days, especially with a stock like Square’s that’s had such a great run, October aside,” said David Ritter, an analyst at Bloomberg Intelligence.

Know More

  • Investor optimism this year has come from Square’s push into higher-margin services like loans, instant deposits, food delivery and employee management software.
  • Square has also introduced a loyalty program and a debit card connected to Cash App.
  • In addition to developing software, Square has been creating new hardware to replace its older devices.

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