The brokerage expects adjusted revenue of $175 million and EBITDA of $8.0 million, both above the company's guidance for $167 million–$171 million and $5 million–$6 million, respectively, and compare to consensus EBITDA of $6.8 million.
"While we believe a top-line beat is expected by the market, we continue to see potential upside to shares driven by positive EBITDA momentum," analyst Darrin Peller wrote in a note.
The key EBITDA drivers include higher margins on volume growth and transaction revenue, and cross-selling opportunities for higher-margin software and data products.
Peller, who has an Overweight rating and $15 target price on the stock, estimates that software and data is only about 10 percent penetrated on Square's seller base in excess of 2 million. The analyst also sees upside to adjusted revenue and EBITDA margin if the company sells software and data products to new merchants.
"[O]ur analysis suggests that an incremental 5 percent of cross-selling penetration into the seller base would result in incremental adjusted revenue of $16 million (2 percent increase) to our FY17 estimate of $876 million, and $11.1 million of EBITDA (11 percent increase vs. our estimate) and ~130bps of EBITDA margin accretion," Peller noted.
At the time of writing, shares of Square were down 0.17 percent at $11.46.
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