Square Inc. (NYSE: SQ) may have a problem managing expectations. The mobile payments giant on Wednesday reported better than expected fourth-quarter earnings but failed to live up to analysts’ lofty guidance outlook, sending share prices tumbling initially.

 

Q4 Earnings: By the Numbers

Square expects adjusted per-share earnings to range from $0.06 to $0.08 in the first quarter, well below the $0.12 range analysts had forecasted earlier. 

Square’s per-share earnings grew $0.14 in the fourth quarter on adjusted revenues of $464 million, the San Francisco-based company reported late Wednesday. Analysts expected an earnings per share (EPS) of $0.13 on revenues of $454 million, according to Refinitiv. Revenues climbed 64% over a year ago, keeping with their trend over the past few years. Excluding acquisitions, adjusted revenues grew 53%, down from 56% in the third quarter. Analysts expected this metric to show 60% growth year-over-year.

MetricExpectedActual
Earnings Per Share (EPS)$0.13$0.14
Adjusted Revenue$454 million$464 million
EPS Guidance for Q1 2019$0.12$0.06 – $0.08

The most troubling aspect for investors was weaker than expected first-quarter earnings guidance, a gauge that helps market participants anticipate future profits. Square expects adjusted per-share earnings to range from $0.06 to $0.08 in the first quarter, well below the $0.12 range analysts had forecasted earlier. 

SQ stock plunged by as much as 7% in after-hours trading Wednesday. It went on to open 4.3% lower on Thursday before reversing its losses by the end of trading. It went on to gain 2.4% in Thursday’s session, defying a broad downtrend for the major indexes on Wall Street.

Despite the recent volatility, Square’s share price has gained a whopping 44.8% this year, well above the 13.5% growth in the Nasdaq Composite Index.

Source: Yahoo Finance

The annual report still had many bright spots that showed huge earnings potential in the future. Subscription- and services-based revenue surged 144% year-over-year to reach $194 million. This category brought in $592 million for the full year.

December was another stellar quarter for the Cash App, a mobile payment platform that allows users to transfer money through their mobile devices. The app had more than 15 million active users in December, doubling from a year earlier.

 

Annual Bitcoin Revenue Defies Bear Market

Investors monitoring Square’s ascension in the blockchain space were surprised to learn that the company defied the brutal bear market that inflicted bitcoin and other cryptocurrencies last year. Square’s bitcoin revenue reached $166 million in all of 2018 – a year that saw bitcoin’s price plunged by over 70%.

It’s also clear from the annual report that the company’s bitcoin sales actually increased in the fourth quarter, a period known as “crypto winter” for the devastating price collapse that occurred in November and December. During that quarter, Square’s bitcoin business brought in $52 million in sales, compared with $43 million in Q3 and $37 million in the second quarter.

Square’s bitcoin business comes mainly from its Cash App, which allows users to buy and sell the leading cryptocurrency. To be sure, the company’s bitcoin business is barely profitable as purchasing costs account for the lion’s share of the revenue. The revenue growth is still notable given the crisis-level collapse in crypto prices last quarter.