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Factors Setting the Tone for Square's (SQ) Earnings in Q3

Zacks Equity Research

Square, Inc. SQ is scheduled to report third-quarter 2019 results on Nov 6.

The company surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 23.66%.

Q3 Expectations

For third-quarter 2019, management anticipates net revenues between $1.13 billion and $1.15 billion. The Zacks Consensus Estimate for revenues is pegged at $1.15 billion.

Adjusted earnings are expected in the range of 18-20 cents per share. The Zacks Consensus Estimate for earnings is pegged at 20 cents.

Past-Quarter Performance

In the second quarter, Square reported adjusted earnings of 21 cents per share, with a positive earnings surprise of 31.25%. The figure surged 61.5% on a year-over-year basis.

Net revenues of $1.17 billion surpassed the Zacks Consensus Estimate of $1.11 billion. The figure improved 44.1% from the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.

Square, Inc. Price and EPS Surprise


Square, Inc. Price and EPS Surprise
Square, Inc. Price and EPS Surprise

Square, Inc. price-eps-surprise | Square, Inc. Quote

Upswing in GPV

Gross payment volume (GPV), which is the key growth metric for Square, is likely to have benefited from strengthening relationships with sellers in the third quarter.

The company defines larger sellers as those which make more than $125,000 of annualized GPV and midmarket sellers as those which make more than $500,000 of annualized revenues.

In the second quarter, GPV came in $26.78 billion, improving 25.3% year over year and 18.6% on a sequential basis. This trend is expected to have continued in the third quarter.

The Zacks Consensus Estimate for GPV for third quarter is currently projected at $27.9 billion, suggesting growth of 24.2% from the year-ago actual figure.

Apart from seller base strength, Square’s robust product portfolio and growing mobile initiatives are expected to have driven growth in its GPV during the third quarter.

Strengthening Seller Base

The company’s comprehensive commerce ecosystem that helps it in attracting new sellers and retaining the existing sellers is likely to have strengthened seller base during the quarter under review.

Moreover, integrations among the company’s product lines, which deliver enhanced user experience, are likely to have driven seller base growth in the third quarter.

Additionally, Square’s strengthening omni-channel offerings, which aid it in serving diverse seller verticals, are expected to have aided momentum across sellers in the to-be-reported quarter.

All these factors are likely to have accelerated the company’s GPV and consequently the top line in the third quarter.

However, higher investments and increasing product development expenses are anticipated to have negatively impacted Square’s profitability in the third quarter. Further, intensifying competition and foreign exchange fluctuations are anticipated to get reflected in the third-quarter results.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for Square this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Square has an Earnings ESP of 0.00% and a Zacks Rank #1.

Stocks to Consider

Here are a few stocks that you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Activision Blizzard, Inc ATVI has an Earnings ESP of +24.30% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eyenovia, Inc. EYEN has an Earnings ESP of +10.51% and a Zacks Rank #2.

iHeartMedia, Inc. IHRT has an Earnings ESP of +3.17% and a Zacks Rank #2.

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