Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
@DTPaymentNews
Square Inc.’s gross payment volume rose 34% year-over-year in the fourth quarter, generating strong revenues and other financial metrics despite large merchants accounting for a bigger share of volume.
The San Francisco-based merchant processor late Wednesday afternoon also gave an upbeat outlook for 2017, all of which lead to an 8% jump in its share price in after-hours trading.
In a conference call with analysts after releasing the financials, chief executive Jack Dorsey hinted in response to a question that the company could be open to distribution deals with independent sales organizations. That’s doesn’t seem likely to happen anytime soon, however.
“It’s been a question that we’ve had, we’re looking for all available channels to us to make sure that we’re reaching sellers where they are,” Dorsey said. But he added that Square’s current sales and marketing mix, which includes online advertising and retail marketing as well as a considerable lift from word of mouth recommendations by existing merchants, or sellers, is working “extremely well” so far.
“We haven’t found a major reason to go to new channels like ISOs, but we’re always open to it,” Dorsey said. “The guiding principle here is just meeting sellers where they are. We’re finding that a lot of sellers are introducing us to other sellers, and that’s been really impactful.”
Gross payment volume totaled $13.7 billion, up 34% from $10.2 billion in 2015’s last quarter. Transaction revenue as a percentage of GPV came in at 2.94%, up slightly from 2.93% a year earlier. That happened even though Square’s largest sellers, those with more than $500,000 in annual GPV, accounted for 14% of volume versus 12% a year earlier. Mid-sized sellers, those with $125,000 to $500,000 in annual GPV, accounted for 28% of volume, up one percentage point. Larger sellers usually produce lower margins for processors, but Square’s transaction-based profit was unchanged at 1.04%.
Total fourth-quarter net revenue increased 21% year-over-year to $452 million, and adjusted revenue, which factors out the impact of Starbucks Corp.’s volume, increased 43% to $192 million. Starbucks has now largely completed its move off of Square’s system.
Square posted a net loss of $15 million versus a $48 million loss in 2015’s fourth quarter. Adjusted earnings before interest, taxes, depreciation, and amortization, again excluding Starbucks, came in at $30 million, representing a 16% margin, compared with negative EBITDA of $6 million a year earlier.
One reason for the improving profitability was that transaction loss as a percentage of GPV trended below the company’s historical 0.1% average, according to chief financial officer Sarah Friar. The company is aggressively using machine learning, or artificial intelligence, to control fraud risk, and it plans to expand use of that technology to other areas, she said.
