Why Square Is Sinking Despite a Strong Q3

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Square Inc. (NYSE: SQ) released its most recent quarterly results after the markets closed on Wednesday. The company said that it had $0.13 in earnings per share (EPS) and $882.1 million in revenue, compared with consensus estimates that called for $0.11 in EPS on $860.5 million in revenue. In the third quarter of last year, the payments company reported EPS of $0.07 and $585 million in revenue.

While Square’s earnings look great at first glance, it has to be considered that this stock is up 125% over the past 52 weeks, and up nearly 140% in just 2018 alone. In order to keep this stock on the move, the company needs to keep knocking it out of the park, and although this was a great quarter it just wasn’t enough to keep up the momentum.

Excluding the acquisitions of Weebly and Zesty, total net revenue and adjusted revenue grew 46% and 56% year over year, respectively, which represents an acceleration compared to the prior quarter.

Gross payment volume (GPV) was $22.5 billion, up 29% year over year. The company continues to see strength from larger sellers. GPV from this group grew 41% year over year and accounted for 52% of total GPV, up from 48% in the third quarter of 2017.

In terms of the revenue breakdown, Transaction-based revenue was $655 million, up 29% year over year, and Subscription and services-based revenue was $166 million, an increase of 155%. Hardware, making up the smallest segment, saw its revenue grow 74% to $18 million.

Looking ahead to the fourth quarter, the company expects to see EPS in the range of $0.12 to $0.13 and adjusted revenue between $446 million and $451 million. Consensus estimates call for $0.15 in EPS and $442.4 million in adjusted revenue for the coming quarter.

Shares of Square traded down more than 8% early Thursday at $75.89. The consensus analyst price target is $52.84 and a 52-week trading range is $34.14 to $101.15.