Fly Intel: What to watch in Square earnings report

Square (SQ) is scheduled to report results of its third fiscal quarter after the market close on November 6, with a conference call scheduled for 5:00 pm EDT. What to watch for: 1. OUTLOOK: During the company’s last earnings call, Square affirmed its 2019 adjusted earnings per share outlook of 74c-78c, as well as its 2019 revenue outlook of $2.25B-$2.28B. The company also said it expects Q3 adjusted earnings per share between 18c-20c, and revenue of $590M-$600M. 2. REVENUE GROWTH ‘UNSUSTAINABLE’: Nomura Instinet analyst Bill Carcache said that Square’s valuation is “lofty” and “unsustainable.” While certain elements of valuation are subjective, fundamentals don’t support Square’s premium, Carcache said in an October 29 research note titled “Why SQ’s Valuation Just Doesn’t Square.” He believes the company’s growth rate is on the verge of falling below PayPal’s (PYPL) despite the fact that PayPal is growing off of a base that is five-to-six times larger. In addition, while bulls will argue that growth will accelerate after Square invests the proceeds from the sale of Caviar, investors should be skeptical of companies “that are chasing growth at the expense of returns,” contended Carcache. 3. ‘OVERLY NEGATIVE’ SENTIMENT: Wells Fargo analyst Timothy Willi upgraded Square to Outperform, saying the company’s fundamentals remain strong while investor sentiment is “overly negative and close to inflecting.” Willi said the stock’s valuation is more attractive than it has been for some time and pointed out that although Square’s gross payment volume growth moderated more than expected during Q2, it was still nearly three-times the growth of card-based payments in the U.S. Willi believes “most, if not all,” investor concerns are already reflected in Square’s share price and valuation. 4. COMPETITION: Square was a wonder of financial technology when it went public back in 2015, but now competitors are catching up to the company, which has still never turned a profit based on traditional accounting metrics, according to Barron’s Ben Walsh. Competitors include Fiserv (FISV) subsidiary First Data’s Clover, ShopKeep, Verifone, and PayPal’s Venmo. Walsh also noted that investors have valued Square as a software company, with a high valuation, instead of as a payment processor. 5. CASH APP: Cantor Fitzgerald analyst Joseph Foresi said he believes the Cash App is Square’s entrance into a consumer money management platform. The Cash App can take advantage of the opportunities in people-to-people and debit usage growth, Foresi told investors on October 11. He estimated Cash App will represent incremental adjusted revenue growth of 10 percentage points on average over three years.