Square likely to post weak earnings in Q3

Square Inc. (NYSE: SQ) is scheduled to report its third-quarter 2019 earnings results on Wednesday after the market closes. The results will be hurt by higher costs and expenses despite a possible growth in the top line. However, the adjusted revenue growth rate will decelerate due to an increase in transaction-based costs, bitcoin costs and higher impact of deferred revenue adjustment.

The adjusted growth rate stood at 59% in the first quarter and 46% in the second quarter. And when considering the analysts’ expectations growth of 38%, the rate is set to crash in the third quarter due to a rise in costs.

Square’s gross payment volume has shown the same growth strategy of 27% in Q1 and 25% in Q2. Investors expect that the gross payments volume growth is set to fall in the third quarter due to a shortfall in GPV from larger sellers. Also, this will showcase the company’s ability to sustain its growth annually.

The company’s technological dominance in the payments space has attracted more players to take a pie out of the industry. Square faces stiff competition from its rivals PayPal Inc. (NASDAQ: PYPL), Intuit (NASDAQ: INTU), Shopify (NYSE: SHOP), Visa (NYSE: V), and Mastercard (NYSE: MA). It is expected that investors will look out for gross payment volume as a measure of Square’s success in the competition war.

Analysts expect the company’s earnings to jump by 53.80% to $0.20 per share and revenue will climb by 38% to $596.51 million for the third quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “strong-buy” or “buy” rating with an average price target of $77.11.

Read: Twilio Q3 earnings review

For the second quarter, Square posted a wider loss due to higher costs and expenses. The top line jumped by 44% helped by double-digit growth in the revenue components. The company continued to generate strong revenue growth at scale and is investing in its business to drive long-term growth.

For the third quarter, the company expects adjusted revenue in the range of $590 million to $600 million and adjusted earnings in the range of $0.18 to $0.20 per share. For fiscal 2019, adjusted revenue is predicted to be in the $2.25 billion to $2.28 billion range and adjusted earnings of $0.74 to $0.78 per share.

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