5 things we learned from Square’s strong Q2

Square

Square’s numbers moved in the right directions last quarter, providing co-founder and CEO Jack Dorsey with some welcome ammunition to hit back at critics of his decision to lead two major technology businesses at the same time.

 

Key Q2 numbers:

> Gross payment volume (GPV): up 42% YOY to $12.5bn
> Net loss: $27m, $2m smaller YOY
> Total revenue (including Starbucks): $439m, up 41% YOY
> Adjusted revenue: $171m, up 54% YOY
> EBITDA: $13m, surpassing guidance

The San Francisco mobile payments firm beat analyst expectations in the second quarter of the year, with revenues up, losses down and strong growth in newer products such as Square Capital plus its new card reader. The company’s core payments business looks to be in good health and as it matures the make-up of merchants using its core payments business is shifting as bigger sellers, meaning bigger ticket volumes being funnelled through its system.

After a miserable Q2 from Twitter, Square’s better-than-expected results come at a good time for Dorsey, but the market continues to be a challenging and crowded place.

Here, we pull out five of the most important takeaways from the firm’s second quarter results so you don’t have to.

sQUARE B

 

1. Losses got smaller

Square posted a smaller than last year. Not by a lot, but it’s a step in the right direction with the firm reporting a net loss of $27.3m in the three months to June 30th. The company has sliced $2.3m off its losses in the same quarter a year ago.

sQUARE Q2 NET LOSS

Source: Square

 

2. New sellers drive 42% volume growth

Square, which went public in the second half of last year, said an uptick in new seller activity was the main factor driving a 42% increase in gross payment volume year on year. In Q2 the firm processed $12.5bn worth of payments across its platform.

While the fact the firm can attract new sellers is definitely a good thing for the company seven years since launch, retention is critical. The firm says dollar-based retention from existing sellers had a “meaningful” impact, but does not split out any detailed numbers.

Square Q2 GPV

 

3. Volume from larger sellers up 61%

Square pitches itself as the friend of small merchants, but bigger sellers (which it defines as turning over more than $125,000 GPV but as excluding Starbucks) drove a 61% uptick in payments volume across its platform year on year. The contribution of bigger sellers is on the up. Merchants with more than $500,000 GPV annually made up 7% of Square’s payments volume in Q2 2014 – two years later this has doubled. Smaller merchants (with less than $125,000 per year) made up 70% of GPV in 2014 Q2, but 58% in 2016.

Square seller mix

 

4. Square Capital lending up 123%

Payments is the core of Square, but it is in the diversification of its products and revenue streams that it means to shore up its business long term.

Square Capital was one of the first bolt-on products it launched for merchants using its platform and it seems to be seeing good growth. Square says it extended $189m across 34,000 loans during the quarter, up 123% year on year and 23% from the previous quarter. Another way of putting that is that it lent more than $100m last quarter than in the previous quarter.

Square Q2 capital

5. Revenue

Square splits its revenue into total (which includes money coming through its soon-to-end relationship with Starbucks) and adjusted revenue.

Square’s total revenue for the period climbed 41% to $439m, while adjusted revenue came in at $171m, up 54% year on year. Diving down into how those adjusted revenues carve up, $130m was transaction profit (up 38% YOY), $30m came from software and data (up 130% YOY), while $11m (up 209% YOY) came from its hardware products, boosted by demand for its new reader.

The firm says its processing agreement with Starbucks is set to expire next quarter but may take longer than expected to tie up as Starbucks moves to a new processer.

Meanwhile, check out our interview with Square’s other co-founder McKelvey talking about the early days of Square, entrepreneurship and what’s hot in payments.

 

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