Dorsey wants Square to be synonymous with mobile payments

Jack Dorsey wants Square to be synonymous with mobile payments and believes the current EMV shift in the U.S. will help the seven-year-old company accomplish the CEO’s ambitious goal.

Square announced, March 9, as part of its first earnings report as a public company that it had received over 350,000 preorders for the company’s new EMV-enabled contactless reader.

Dorsey said during the earnings call that while he believes Square’s device performs the fastest chip read on the market, the company is encouraging its merchants to push mobile payments and for consumers to make them with major third-party mobile wallets.

“We’re taking full advantage of the [EMV] shift,” Dorsey said during the earnings call. “We want to associate our logo with the ability to pay with your phone.”

Dorsey mentioned reports that consumers and merchants are miffed at the slower in-store checkout process with chips cards and that mobile payments is a way to erase this problem. Square devotes a section of its website to educating merchants about NFC-enabled mobile payments.

“We’re still teaching sellers and buyers about paying with and accepting chip and contactless [payments],” Dorsey said. “We have to educate and we’re seeing some positive returns from that [effort].”

As for Square’s financial results, the company beat Wall Street’s expectations and its stock jumped almost 5 percent in after-hours trading.

Square said it processed gross payment volume of $10.2 billion in the fourth quarter ended Dec. 31, which represented an increase of 47 percent from the same period in 2014.

For the full year of 2015, gross payment volume totaled $35.6 billion, a 50 percent increase from 2014.

Square noted in a press release that ongoing growth within its existing seller base and the addition of new merchants last year contributed to the increase in gross payment volume.

Total net revenue, which includes revenue from Starbucks, was $374 million in the fourth quarter, up 49 percent, and $1.267 billion for the full year of 2015, also up 49 percent.

Square’s transaction revenue was $299 million in the fourth quarter of 2015, up 45 percent. Transaction revenue as a percentage of the gross payment volume was 2.93 percent compared to 2.97 percent in the prior year period. The company said in a press release it attributed the decline to increases in free processing credits for seller-to-seller referrals and selectively offering custom pricing to larger sellers.

Hardware revenue in the fourth quarter was $6 million, up 215 percent from the fourth quarter of 2014, and for the full year of 2015, it was $16 million, up 124 percent compared to 2014. The company attributed the jump to itcontactless reader, which it began shipping to merchants in December.

Square’s fourth-quarter adjusted EBITDA was a loss of $6 million, compared to a loss of $11 million in the fourth quarter of 2014. Adjusted EBITDA for 2015 was a loss of $41 million compared to a loss of $68 million for 2014, representing 15 points of EBITDA margin improvement.

Sarah Friar, Square’s CFO, said that current guidance has the company breaking even toward the middle of the year.

For years, Square lost money on its processing services because that was the company’s only offering, and it was provided at cheaper interchange rates than traditional processors. But as Square increases its merchant partners and adds more ancillary services, profitability appears within reach.

“The core itself is a strong, healthy business,” Friar said during the earning call. “Add-on products give us the ability to upsell [to merchants] and gives us the path to profitability.”

Square still has plenty of opportunities to grow its business inside and outside the U.S.

Friar noted that some 20 million merchants in the company’s core markets still don’t accept card payments. As cash use declines, those businesses might be more inclined to accept plastic and mobile payments and that represents an opportunity for Square to expand its merchant base.

The company also has its eye on the international market and last week announced the availability of its payment processing and hardware products in Australia. The country marks the fourth market for Square, joining the U.S., Canada and Japan.

Dorsey said that EMV’s international nature will help Square expand faster worldwide.

Square also addressed the status of its ancillary services including:

  • Square Capital: The company extended over $400 million through more than 70,000 advances in 2015, with nearly $150 million advanced in the fourth quarter.
  • Instant Deposits: Square has the ability to send funds from a sale to a seller’s bank account immediately. Since the company launched the service in August, it has helped over 58,000 merchants complete nearly 600,000 deposits instantly. Square charges 1 percent of the amount deposited as a fee.
  • Square Invoices: This service enables businesses to create custom digital invoices and collect payments online. Since its launch a year and a half ago, approximately 100,000 active sellers had used Square Invoices to process their payments as of the end of the fourth quarter.
  • Caviar: This is Square’s restaurant delivery service, which is now active in 17 markets nationwide. The company said the number of orders through Caviar in the fourth quarter grew by 4.5 times year over year.
Recommended Posts