Jack Dorsey really needs a hit. After Twitter’s weak second-quarter showing, and both stocks not performing well in the past year, Dorsey — as the lead of both companies — needs to show investors his strategies are working (and that he can run both companies).
Well, he certainly got one today. Square reported its second-quarter earnings, where it brought in $439 million in revenue, whereas analysts were expecting revenue of $406 million. Square posted a loss of 8 cents per share, compared to analyst expectations of a loss of 11 cents per share. With a clear outperformance on two of the key metrics that the company is graded on, it looks like Dorsey may have bought himself some room to maneuver in Wall Street for Square.
Across the board, the metrics look good. Revenue was up 41% year-over-year, gross payment volume was up 42% year-over-year, and the company extended $189 million through Square Capital — up 123% from the same quarter a year ago.
Its Square Capital business is increasingly important for the company as it tries to lock businesses into its payments infrastructure. By helping businesses get off the ground with an easy-to-use interface and ramp-up process, it can ensure that those businesses hang around as they continue to scale up. It also represents another additional tranche of revenue it can rely on to grow beyond its traditional point of sale system — at least, until it can figure out other revenue streams and maybe see some strong growth from Square Cash.
Still, businesses like Square Capital might be tricky moving forward. We’ve seen for some time that institutional sources of capital are more skittish these days. That source of capital has provided companies like Lending Club with lots of resources to operate their loaning operations — and grow them quickly. But there could be some early signs of change that may signal a more difficult time to gather capital for online lending businesses. That might not necessarily apply to Square, but it does represent a potential hurdle.
Still, there was no specific mention or breakout of Square Cash in the earnings report. With Venmo becoming a huge business and competition coming from basically every direction — including Facebook — Square needs to figure out its own spin on peer-to-peer transactions.
Square has had a rocky year, with its shares down around 20%. But in extended trading after reporting its second-quarter earnings, shares of Square were up as much as 10%. It was important to show that Square could continue to grow and prove it could come up with a sustainable model working on three fronts: point of sale, Square Capital, and the potential of its peer-to-peer payments system Square Cash.
And there’s still an elephant in the room: Dorsey. Currently running two companies — Twitter and Square — it’s not clear how long Wall Street’s patience will last with both stocks currently floundering. Shares of Twitter are down around 38% over the past year. Most recently, Twitter’s poor performance sent the stock diving 10% when it reported its second-quarter earnings report.