Square Grows in the Third Quarter, Driven by Bigger Retail Merchants and New Services

Square Inc. is proving its payments services are just as valuable to merchants with multiple stores as they are to street vendors looking for a way to accept credit cards.

Those larger merchants are increasingly turning to Square for simple ways to process transactions and manage their businesses, helping the company post earnings that exceeded analysts’ projections and raise its full-year forecast.

Adjusted revenue rose 45 percent to $257 million in the third quarter, compared with the average estimate of $245.3 million. The San Francisco-based company processed $17.4 billion in gross payment volume, an increase of 31 percent from a year before and more than analysts estimated.

Square’s shares have almost tripled in the past year as investors see value in its all-in-one hardware products for small and medium-sized businesses. In addition to processing payments, Square has been adding services that make running a company easier. For instance, it offers ways to track employee hours and provide instant deposits. Square’s merchant-lending businesses has also increased rapidly, and the company’s higher-margin services have been contributing a growing share of revenue, offsetting a slowdown in payments transaction growth.

Square said almost half of its gross payment volume came from merchants who handled more than $125,000 in annualized sales volume. Chief Financial Officer Sarah Friar said the majority of the increase in larger sellers came from new merchants joining Square, rather than growth from existing sellers.

“We are starting to get into segments that wouldn’t have been available a few years ago,” Friar said in an interview.

Square has tried to attract new sellers by creating products specific to different merchant groups. Last month, it unveiled a countertop device built for larger customers. Square has also rolled out point-of-sale services for retailers and restaurants.

Chief Executive Officer Jack Dorsey, who also runs Twitter Inc., has expanded Square’s ambitions in the banking industry. Earlier this year, Square filed for an industrial loan company charter, which could save money by eliminating the need for a loan-origination partner. With the charter, Square would be allowed to raise deposits, increasing the company’s flexibility to keep or sell loans and reducing its reliance on investors, according to David Ritter, a Bloomberg Intelligence analyst.

Adjusted earnings before interest, tax, depreciation and amortization were $34 million, or 7 cents a share, compared with an average analyst estimate of 5 cents a share. For the full year, Square predicted adjusted revenue of as much as $966 million, up from a previous forecast of as much as $935 million. Earnings per share excluding some items are expected to be 24 cents to 25 cents, up from an earlier forecast of as much as 23 cents.

©2017 Bloomberg L.P.

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