Key Takeaways

  • Analysts estimate adjusted EPS of $0.15 vs. -$0.02 in Q1 FY 2020.
  • Gross payment volume is expected to rise YOY.
  • Revenue is expected to increase at nearly triple the pace of the same quarter a year earlier as Square attracts new users.

Square Inc. (SQ) announced in March the acquisition of a majority stake in Jay-Z's Tidal music streaming service for $297 million. Also joining Square's board will be J-Z himself, the famous rapper, songwriter, and entrepreneur. That deal is just the latest move in Square's strategy to sharply expand the reach of its payment service ecosystem.

Investors will be looking through the hype of the recent acquisition to see if Square can continue delivering strong financial results when it reports earnings on May 6, 2021 for Q1 FY 2021. Analysts expect Square to post positive adjusted earnings per share (EPS) after a loss in the year-ago quarter. Revenue is expected to rise at a rapid pace consistent with the two previous quarters.

Investors will also be focused on Square's gross payment volume (GPV), a key metric that provides an overall picture of transaction volumes. It is Square's main gauge of the total dollar amount being transacted through its payment ecosystems. Analysts expect GPV to rise compared to the same three-month period a year ago.

Shares of Square have dramatically outperformed the broader market over the past year. The stock has risen fairly steadily over the last 12 months but its movements have become more volatile since the start of 2021. After a surge in late March through early April that brought it in reach of previous all-time highs, the stock has been trending downward. Square's shares have posted a total return of 263.0% over the past year, well above the S&P 500's total return of 46.5%.

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

Square Earnings History

After hitting a record high in February the stock began to drop and continued to slide following Square's Q4 FY 2020 earnings report. Adjusted EPS beat expectations, rising 41.8% compared to the year-ago quarter. Revenue narrowly missed estimates but grew at a rapid pace of 143.3%, just a slight deceleration from the previous quarter. Revenue was primarily driven by Cash App revenue, which was up 502% year over year (YOY).

In Q3 FY 2020, adjusted EPS rose 34.4%, the first increase since the final quarter of FY 2019. Revenue grew 147.6%, more than double the pace of growth reported in Q2 and the fastest pace in at least 13 quarters. Square noted that the number of Cash App customers nearly doubled from the same quarter a year ago as it provided customers ways to make contactless payments amid the ongoing COVID-19 pandemic.

Analysts expect Square to post positive adjusted EPS, a big improvement from the adjusted loss per share reported in Q1 FY 2020. Revenue is forecast to rise 142.7%, keeping up with the accelerated pace of growth posted in the previous two quarters. For full-year FY 2021, analysts are currently expecting adjusted EPS to rise 41.7%, the fastest pace since FY 2019. But annual revenue is expected to rise 52.8%, about half the pace of growth achieved last year.

Square Key Stats
  Estimate for Q1 2021 (FY) Q1 2020 (FY) Q1 2019 (FY)
Adjusted Earnings Per Share ($)  0.15 -0.02 0.11
Revenue ($B) 3.4 1.4 0.9
Gross Payment Volume ($B) 30.0 25.7 22.6

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focusing on Square's GPV, a key metric tracking the total dollar amount, net of refunds, of all card payments processed by sellers using the company's payments ecosystem. It includes peer-to-peer payments as well as transactions with merchants that use Square's mobile payments app. Square charges transaction fees on these gross payments and those fees constitute a major source of revenue. The transaction fees are generally calculated on a percentage of the total transaction amount processed. The greater the GPV, the more transaction-based revenue Square is able to generate.

GPV also provides an indication of how many users the company has on its platform. If Square can attract more users to its main payments ecosystem, then it will be able to direct more traffic to its other businesses, such as operations management software company Stitch Labs LLC and website building platform Weebly Inc. It will also be able to offer its digital payment services to customers of those businesses. With the recent acquisition of Tidal, Square plans to offer those payment services to the artists that use the music streaming platform.

Square's GPV grew at a robust pace over the past three years, but that pace has been decelerating. In FY 2017, annual GPV rose 31.5% before slowing to 29.6% in FY 2018 and then to 25.5% in FY 2019. Last year, the pace of growth slowed significantly amid the COVID-19 pandemic and its adverse impact on the economy. In Q2 FY 2020, quarterly GPV declined 14.9%. For the full-year, annual GPV growth slowed to 5.7%. Analysts expect growth to accelerate in FY 2020, with estimates that quarterly GPV will rise 16.7% in Q1 FY 2021. For full-year FY 2021, analysts are currently forecasting annual GPV to grow 25.3%.