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Square plunges nearly 15% after issuing Q3 earnings outlook below estimates

Square Inc. shares are down 14.9% to $68.90 as of 11:53 a.m. ET on Aug. 2 after the company issued third-quarter EPS guidance that is lower than the consensus estimate.

The mobile payments company is forecasting third-quarter EPS of 18 cents to 20 cents, which is lower than the S&P Global Market Intelligence consensus normalized EPS estimate of 22 cents. However, Wolfe Research analyst Darrin Peller said the guidance is just a conservative estimate from the company.

Square reported its most recent quarterly earnings in the after-market hours of Aug. 1, posting second-quarter adjusted net income of $100.4 million, or 21 cents per share, a sharp increase from $62.4 million, or 13 cents per share, in the year-ago period. The Market Intelligence consensus estimate for the second quarter was 16 cents per share.

Square also announced that food delivery startup DoorDash Inc. is set to acquire its food delivery platform Caviar in a $410 million deal. On a call discussing the quarterly results and the deal, Square President, Chairman and CEO Jack Dorsey said the company will increase its investments on hardware offerings, sales and marketing following the sale in an effort to double down on its seller ecosystem and Cash App, its consumer ecosystem. Selling Caviar will "sharpen" Square's focus on its core competency, Nomura analyst Dan Dolev said in an Aug. 2 note

"Selling Caviar helps [Square] focus on its growing seller and Cash App ecosystems [versus] spending unnecessary time on the ultra-competitive food delivery market," Dolev said.

But he added that the stock was likely to be under pressure because Square's guidance "lacked oomph."

Square has beaten and raised guidance for the last 13 quarters, Bernstein analyst Harshita Rawat said in a note following the earnings call. An in-line quarter and guidance below consensus estimates is a near-term negative revision, Rawat wrote.

The company said it will update guidance following the close of the DoorDash-Caviar deal, which is expected to occur in 2019.

While Caviar comprised the second-largest component in subscription and services revenues at Square, CFO Amrita Ahuja said "ongoing costs" such as revenue sharing with restaurants resulted in the segment's lower gross margin profile than other revenue streams.

Although the stock is down, analysts are bullish about Square long term. MoffettNathanson analyst Lisa Ellis said she feels "quite a bit" better about Square after yesterday's earnings report and call. "Thank goodness" Square sold Caviar, Ellis said in an Aug. 2 note. Square also disclosed for the first time that Cash App generated $135 million in revenues in the second quarter, which accounted for 24% of the company's total adjusted revenues.

The analyst is still cautious on Square's e-commerce presence and "fierce competitive pressure" as it shifts toward larger sellers.

The drop in Square's shares came amid a broader market sell-off.

As of 10:54 a.m. ET, the SNL U.S. Bank Index retreated 1.14% to 566.99 and the SNL U.S. Thrift Index inched down 0.68% to 845.79. The Dow Jones Industrial Average shed 1.13% to 26,282.99, the S&P 500 contracted 1.24% to 2,917.02 and the Nasdaq Composite Index dropped 1.85% to 7,961.07.

Financial markers were rattled Aug. 1 and Aug. 2 after President Donald Trump said there will be an additional 10% tariff on $300 billion of goods from China, effective Sept. 1.

S&P Dow Jones Indices and S&P Global Market Intelligence are owned by S&P Global Inc. Market prices and index values are current as of the time of publication and are subject to change.