As third-quarter earnings results have poured in for major online retailers, investors have been left in a state of confusion. Amazon, Wayfair and Shopify all posted results that were below investors’ expectations.
Amazon.com (NASDAQ:AMZN), Wayfair (NYSE: W) and Shopify (NYSE: SHOP) represent only one side of the equation, though. Fintech firms underpin the omnichannel payment sector, and Square is the first major company to report its quarterly results.
Like the e-tailers, Square (NYSE: SQ) disappointed analysts, reporting a total gross profit of $1.13 billion, up 43% year-over-year, on revenue of $3.84 billion in the third quarter. Excluding its bitcoin investments, total net revenue was $2.03 billion in Q3, up 45% year-over-year. Adjusted net earnings per share was 37 cents on a diluted basis. Adjusted EBITDA was $233 million in the quarter.
A FactSet poll of analysts forecast Q3 revenue at $4.39 billion and adjusted EPS of 38 cents.
Bitcoin revenue was a disappointment, rising just 11% year-over-year to $1.18 billion in the quarter. Bitcoin revenue was $2.72 billion in the prior quarter and had grown 200% year-over-year in Q2.
Square’s Cash App mobile transaction platform was a highlight, though, generating $2.39 billion in revenue and $512 million in gross profit for the quarter. Excluding bitcoin, Cash App revenue was $578 million in the quarter, up 33% year-over-year.
The company also announced it would make its Cash App available to teens ages 13-17 after previously restricting its usage to those over the age of 18.
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Gross payment volume (GPV) was $45.4 billion in the quarter, with 92% of that generated from the Seller ecosystem.
The company reported its midmarket sellers, which made up 37% of the Seller ecosystem (up from 28% two years ago), saw profit grow twice as fast as its overall Seller business on a two-year compound annual gross rate basis. Seller profits overall were $606 million, up 48% year-over-year, on revenues of $1.39 billion.
Square said that Seller GPV rose 55% year-over-year on situations in which physical cards were used, and 29% when the card was not present, primarily in online channels.
In other business highlights, Square Invoices processed $12 billion in gross payment volume over the past 12 months, up more than two times that of 2019. Transaction-based revenue was $1.3 billion in the third quarter of 2021, up 40% year over year, and transaction-based gross profit was $543 million, up 35% year-over-year. Square Loans saw gross profit grow during the third quarter as the funding program facilitated approximately 83,000 loans totaling $594 million in originations and nearing pre-pandemic quarterly origination levels, the company said.
Square stock is up more than 16% in 2021 and almost 300% since January 2020. According to 24/7 Wall Street, 27 of 38 brokerages have a buy or strong buy rating on Square despite its recent stock rise, and eight have a hold rating.
Also announced on Thursday was that Square shareholders have approved the issuance of Class A common stock to Afterpay shareholders as Square moves closer to completing its $29 billion acquisition of the Australian buy-now, pay-later finance firm.
A hearing is expected to be held on Friday in Australian court. Afterpay (OTC: AFTPY) said on Thursday it still expects the transaction to close.
Click for more articles by Brian Straight.
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