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Square to focus on hardware, sales, marketing with sale of food delivery service

Square Inc. will increase investment in its go-to-market hardware offerings and sales and marketing following the sale of one of its business segments.

In conjunction with its second-quarter earnings release, Square announced that it will sell its food delivery platform Caviar to DoorDash Inc. for $410 million. On a call to discuss earnings, Square President, Chairman and CEO Jack Dorsey called DoorDash "an obvious choice" because of Square's preexisting partnership with the company.

Square intends to strengthen both the seller ecosystem and its Cash App, but those opportunities require "more focus and more investment," Dorsey said.

"Our focus right now is going to be on hardware, sales and marketing," Dorsey said, adding that Square would balance that with enhancing the developer's platform and Square's application programming interface.

In selling the Caviar business, Square will focus on serving restaurants and food sellers through that platform approach. By using the API, Square succeeds as DoorDash succeeds, Dorsey said.

Caviar represented the second-largest component of Square's subscription and services revenue stream, according to CFO Amrita Ahuja. Square reported $251 million in subscription and services revenue in the second quarter.

Cash App, excluding bitcoin, accounted for $135 million of that revenue stream, which Ahuja said was the No. 1 driver. Capital represents the third-largest component of the subscription and services revenue.

From a margin perspective, Ahuja said Caviar had lower gross margin profile than the remainder of Square's revenue streams related to subscription and services.

"There are ongoing costs associated with Caviar, including fees for couriers and the revenue share with restaurants that have made it the largest component of subscription and services-based cost," she added.

The company provided third-quarter EPS guidance lower than the consensus estimate. Wolfe Research analyst Darrin Peller said in a note following the earnings release that Square's guidance was likely conservative.

Square will update its guidance after the sale of Caviar to DoorDash. The deal is expected to close in 2019.

Shares in the financial technology company are down more than 6% in aftermarket trading hours.