Square projects profit that falls short on greater spending

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Square gave an earnings forecast in the current quarter that missed analysts’ estimates, amid increasing spending on new products beyond its central payments processing business. The profit projection outweighed a strong sales outlook, sending shares down in extended trading.

Adjusted earnings will be 12 cents to 13 cents a share in the fourth quarter, the San Francisco-based company said Wednesday in a statement. Adjusted revenue will be $446 million to $451 million. Analysts projected 15 cents a share on sales of $440.6 million, according to data compiled by Bloomberg. Adjusted earnings before interest, taxes, depreciation and amortization will be $75 million to $80 million in the current period, Square said. Analysts on average estimated $80.1 million. Adjusted revenue rose 68 percent to $431 million in the third quarter.
Operating expenses, excluding certain items, rose 56 percent in the period from a year earlier and represented 67 percent of adjusted revenue, Square said. The company spent more across all categories, including to hire more engineers and pick up the pace of advertising.

The report marks the last for Chief Financial Officer Sarah Friar, who will be stepping down to become the chief executive officer of neighborhood social networking company Nextdoor.com Inc. Friar has been credited by Wall Street with helping expand Square’s business and giving Chief Executive Officer Jack Dorsey the flexibility to run the company and Twitter Inc. Square’s stock fell 11 percent the day after her departure was announced in October and 26 percent for the month.

Shares fell 4.2 percent to $79.35 in extended trading at 5 p.m. in New York, after earlier dropping as much as 8.6 percent. The stock has more than doubled this year.

Investor optimism this year has come from Square’s push into higher-margin services like loans, instant deposits, food delivery and employee management software.

Square has also introduced a loyalty program connected to its Venmo-like peer-to-peer money transfer app, Cash App. The company offers a debit card connected to the app.

In addition to developing new software to make running a business easier, Square has been creating new hardware to replace legacy machines. Last month, Square unveiled a device that lets sellers ring up sales, process any type of payment, and print receipts from one device, rivaling old-school keypad-based credit-card machines.

Bloomberg News