What Happened to Square:

Square announced its Q3 2019 results on November 6, after the market closed. It beat analysts' expectations on both revenue and earnings. This was its first profitable quarter since Q3 2018. Notably its gross payment volume continued to grow, rising 25% year over year, same as Q2. Square's gross payments volume growth had been slowing in the last few quarters so this could indicate that growth is stabilizing. Investors should be alert to see if this level of growth holds.

(Below is Investopedia's original earnings preview, published 10/31/19)

What to Look for from Square:

Square Inc. (SQ), the financial services company co-founded by CEO Jack Dorsey, has posted dramatic growth since going public four years ago, boasting a market value today of about $26 billion. That growth often has come as Square adapts its products, most recently arousing the ire of some merchants by announcing a change in its fee model for tapped, dipped and swiped credit card transactions starting in November. That's one reason why investors will closely watch a key metric for the latest quarter and coming quarters: Square's gross payments volume, which is the total volume of payments the company processes. Square reports earnings on November 6 for Q3 2019. The company earlier offered lower-than-expected Q3 guidance, one catalyst for the stock's steep decline in recent months.

Analysts expect a mixed Q3. They estimate the financial services company will report no profits for Q3, or GAAP earnings per share (EPS) of $0.00. However, analysts expect total net revenue to rise sharply. In the last 12 months, Square's stock has declined by more than 15%, a significant underperformance gap compared with the S&P 500, which has gained more than 12%.

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

Square's year-over-year quarterly revenue growth increased from Q3 2017 to Q3 2018 and has similarly grown on a sequential basis in recent quarters. While revenue in Q3 appears to have plateaued compared to Q2, it's expected to rise sharply compared to Q3 a year ago. GAAP EPS, on the other hand, has fluctuated more broadly, with the three most recent prior quarters each seeing negative EPS. As indicated, analysts expect no GAAP profits per share in Q3, in short posting neither a profit or a loss. The most recent quarterly GAAP EPS of -$0.02 represented a surprise of nearly 53%.

Square Key Metrics
  Estimate for Q3 2019 Q3 2018 Q3 2017
Earnings per share $0.00 $0.04 -$0.04
Revenue (in millions) $1,150 $882.11 $585.16
Gross payments volume (in billions) N/A $22.5 $17.4
Sources: Zack's, YCharts, and Square

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 Q3 2017 and Q3 2018. During that period, Square witnessed incredible 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 note that Square has often seen some of its biggest gains in annual gross payment volume 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. If prior years are an indication, Q3 gross payment volume this year may not grow as significantly on a sequential basis.