Square's Outlook Looks 'Strong'

Square Inc SQ reported strong 2Q16 results, with the adjusted revenue, GPV, adjusted EBITDA and EPS beating expectations. The company also raised its 2016 guidance.

Barclays’ Darrin D. Peller maintains an Overweight rating on the company, with a price target of $15.

Robust Outlook

“We anticipate that investors will view the slowdown in product development expenses and G&A positively as well. Going forward we expect continued outperformance vs. expectations driven by Square Capital, cross-selling opportunities, and a continued expansion into larger merchants,” Peller mentioned.

Given the solid top- and bottom-line outperformance, increased guidance, incremental improvement on key expense line items, moving to positive adjusted EBITDA and the “minimal” decline in take rate despite the significant growth at larger sellers, the analyst expects the stock to outperform on August 4.

Related Link: Square Silences Critics; BTIG Still Buying The Stock

Encouraging Results

In fact, volume from larger sellers grew 61 percent year-on-year, representing 42 percent of GPV, which Peller sees as a positive given the higher potential for future software and data product cross-sell revenue.

Square raised its adjusted revenue guidance for FY16 from $615–$635 million to $655–$670 million, ahead of the estimate, while raising the adjusted EBITDA guidance from $8 million–$14 million to $18 million–$24 million.

“We are particularly encouraged by the guide up on EBITDA given the lack of positive EBITDA reported over the last few quarters,” Peller stated.

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