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Earnings

Square earnings: Brick-and-mortar struggles

  • Q1 revenue: $1.38 billion (+44% YoY vs. $1.3 billion expected)
  • Q1 loss: $106 million (-178% YoY, below expectations)
  • Q2 guidance: None provided at this time.

The big number: Square's $106 million loss came as a shock to Wall Street, as the company's exposure to COVID-19 hit its balance sheet faster than expected. It did, however, note it was seeing strong growth in January and February before a slowdown in March.

People are talking: "I do believe that the speed at which we were able to move, and the volume we were able to move with the PPP program for our sellers vs. the rest of the financial institutions, will be a net positive for us in terms of a goodwill halo," Square CEO Jack Dorsey said on a call with analysts.

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Opportunities: Looking at the total dollar amount processed by Square's system from the last two weeks of March through the end of April, seller gross payment volume (GPV) was down 39% vs. the same period last year. However, Square said it had fallen to as low as -45% by the middle of last month, before regaining some ground in the last two weeks of April. Additionally, Cash App gross profits grew 115% over the same period last year.

Threats: Despite data indicating the "early signs of stabilization" in its seller ecosystem, Square's exposure in the sectors hit hardest by the pandemic, like food and beverage services, casts a shadow over the company's near-term future. Even as GPV dips hit businesses of every size, Square touted its multi-channel payments offerings as a way for customers to combat pandemic-imposed restrictions, using digital channels to find new customers until they can set back up in stores.

The power struggle: With a large part of its business coming from brick-and-mortar retail, Square will now need to lean more heavily on those e-commerce products until the U.S. — and its traditional revenue streams — opens back up. The question remains whether its other sources of revenue will be able to pick up the slack in the meantime.

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