Square Inc. once again reported a solid quarter, but the company’s spending initiatives and bitcoin business gave investors some pause.
Shares of Square
were down almost 6% in after-hours trading Wednesday after the payment-processing company said it grew adjusted revenue for its first quarter by 51%, the fourth straight quarter of acceleration on the metric. Adjusted revenue is the net of transaction-based costs as well as bitcoin-related costs, which the company said amounted to $33.9 million in the quarter. Overall revenue from bitcoin was $34.1 million for the quarter.
That slim margin of $200,000 is perhaps one reason why Square’s stock sold off after reporting earnings. Square Chief Financial Officer Sarah Friar told reporters on a media call after the results came out that the $200,000 spread flows to the company’s adjusted revenue. “It’s effectively a margin that we’re putting in place to give us some cushion for when a customer makes purchases and we have to go into the market to buy the bitcoin,” she said. There can be some “fluctuations” in the “dynamic” market for bitcoin
, she added.
Friar urged reporters to think about bitcoin in the larger sense of “how we monetize the Cash app,” referring to Square’s peer-to-peer money-transfer app where the bitcoin trading takes place.
Investors knew from Square’s commentary a few months back that bitcoin-related purchases make up just a small percentage of total revenue, which amounted to $669 million in the latest quarter. But investors were perhaps expecting the bitcoin business to be a bit more profitable.
Square’s sales and marketing expenses grew 55% on a GAAP basis in the first quarter, which Friar said was reflective of the company’s interest in “reinvesting in the business.” The company’s key priorities are omnichannel efforts, financial services and international expansion, she said.
On the omnichannel side, Square recently announced that it would be acquiring website-creation platform Weebly, which it hopes will enhance its e-commerce offerings. Financial services includes products like instant deposits, which are housed in the company’s subscription and services line item. Revenue there grew 98%, to $97 million, in the first quarter.
On the international front, Square has some slightly different objectives for each of the four markets the company operates in outside the U.S. In Australia, for example, the company has seen success building the Square brand through a major presence at big events, Friar said. In the U.K., meanwhile, Square recently introduced the Cash peer-to-peer app as well as instant deposits.
“In terms of brand awareness, we still have a lot of work to do from a U.K. perspective,” said Friar, who indicated that the U.K. was an area where Square would increase spending in 2018.
Friar added that the Weebly acquisition helps the company with its international ambitions as 625,000 of the platform’s paying customers are outside the U.S. “That’s going to be a nice accelerant to international,” said Friar, who sees opportunities to cross-sell and up-sell.
Square shares are up 157% over the past 12 months as of Wednesday’s close, while the S&P 500
has gained 10%.