Inside the Numbers
In Q3, Square reported earnings per share of $0.37 which missed analysts' estimates of $0.38 per share largely due to a bigger slowdown in Cash app growth than expected. This was a modest increase from last year's $0.34 per share in earnings.
Revenue increased by 27% to $3.8 billion which badly missed expectations of $4.4 billion. Cryptocurrency trading continues to be a larger share of the company's profits. The one drawback is that this is a low-margin source of revenue although the bulls believe that the company will be able to figure out more revenue sources. Overall, gross profit was 43% higher at $1.13 billion, just missing estimates of $1.15 billion.
Gross payment volume from merchants increased by 43% to $45.4 billion which was below estimates of $45.6 billion. One driver has been the economy's gradual reopening and normalization which has benefitted many of the small businesses, restaurants, and service-based businesses that use its products.
Stock Price Outlook
The major challenge for Square is that its near-term prospects aren't too bright but its longer-term prospects remain quite bright. In the near-term, revenue growth and user growth are slowing, while the stock continues to be priced for growth. And, this is an environment that is less friendly to growth stocks, different than what we had last year and for much of this past decade with falling rates.
Therefore, the stock could underperform in the short-term but offer a buying opportunity as it continue to have long-term potential given its large user-base and potential as one of the most popular digital wallets for Generation Z and Millennials.