Square Inc. (SQ), the financial services company co-founded by Twitter Inc. (TWTR) CEO Jack Dorsey, has posted dramatic growth since going public more than four years ago, now boasting a market value of about $35 billion. The stock has rallied more than 30% alone since November, when it announced its first profitable quarter in a year, driven by surging gross payments volume. Investors will closely focus on gross payments volume, which is the total volume of payments the company processes, when Square reports earnings for Q4 2019 after the closing bell on February 26. Analysts expect Square to post the first Q4 profit in its history on rising revenue. 

In the last 12 months, Square's stock has underperformed the S&P 500 by a wide margin, rising 7.4% compared with the S&P 500, which has gained nearly 21%.

One Year Total Return for S&P 500 and Square
Source: TradingView. TradingView.Com

For Q4, analysts expect Square to post profits for the second straight quarter after reporting quarterly losses in 11 of the 12 quarters between Q3 2016 and Q2 2019. Still, the earnings will be small. Square is expected to post GAAP earnings per share (EPS) of only $0.01 in Q4, which is far less than the $0.06 posted in Q3 2019. Although expectations are lower for Q4, that would mark sequential growth compared to the $0.07 loss reported in Q4 2018.

Square's quarterly revenue grew 51% from Q4 2017 to Q4 2018 and has continued to grow on an incremental basis in the last three quarters. However, analysts expect this positive trend to slow in Q4 2019, with a 27% year-over-year increase.

Square Key Metrics
  Estimate for Q4 2019 Actual for Q4 2018 Actual for Q4 2017
Earnings per share $0.01 -$0.07 -$0.04
Revenue (in millions) $1,185.0 $932.5 $616.0
Gross payments volume (in billions) $28.5 $23.0 $17.9

As competition has heated up across the payments space, an important measure of Square's success is its gross payments volume. This figure grew significantly on an annual basis between Q4 2017 and Q4 2018. During that period, Square witnessed strong stock growth as it enjoyed elite status as a leader in revolutionizing payments and financial services. Now, rivals like PayPal Holdings Inc. (PYPL) as well as established credit card outfits Visa Inc. (V) and Mastercard Inc. (MA) are threatening Square's technological dominance. As a result, investors should look at gross payments volume in the upcoming earnings report to see whether Square has been able to sustain its growth in this area year-over-year.

Investors should also note that Square has posted its biggest gains in annual gross payment volume on a sequential basis between Q1 and Q2 in previous years. An increase in gross payments volume of almost 19% from Q1 2019 to Q2 2019 is the latest big jump. While analysts expect little growth in gross payments volume in Q4 2019 compared to Q3 2019, current consensus for $28.5 billion would mark a healthy 24% increase over Q3 2018.