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Shares of payment servicer Square plunge on cost concerns

May 6, 2016

NEW YORK (AP) — Shares of Square Inc. plunged Friday, a day after the mobile payment services company reported a surge in expenses and a wider first-quarter loss that missed expectations.

Meanwhile, an analyst raised questions about the company’s long-term growth prospects as it faces competition in a more saturated mobile payments market. The company makes a device that plugs into smartphones and tablets, so credit cards can be accepted almost anywhere.

Its Class A stock fell $2.53, or 19.4 percent, to $10.52 in morning trading Friday.

The San Francisco-based company reported a loss of $96.8 million, or 29 cents per share. Losses, adjusted for non-recurring costs, were 14 cents per share and fell short of expectations. Wall Street was looking for a loss of 13 cents per share.

A key factor in the wider loss was a 72 percent boost in expenses to $207.4 million on higher personnel and product development costs. The company also set aside $50 million for a settlement in its legal dispute with Robert E. Morley Jr., who holds key patents used by the company.

Square went public in November and is co-founded and led by Twitter Inc. CEO Jack Dorsey.

The company’s overall revenue rose 51 percent to $379.3 million, topping Wall Street expectations of $346.1 million.

Transaction revenue, driven by a deal with Starbucks, rose 42 percent to $300 million. Meanwhile, software and data product revenue more than doubled to $24 million while hardware revenue rose six-fold to $16 million.

Wedbush analyst Gil Luria expects the company’s growth to slow over the next couple of years as it faces increased competition from peers including PayPal and Intuit.

“We see early signs in the lack of merchant count growth over the last few quarters,” he said in a note to investors. “We believe this is leading square to increase already market-high ad spending, in what appears to be scattershot manner.”

He downgraded the stock to “Underperform” from “Neutral” and cut the price target to $9 from $11,

Looking ahead, the company expects adjusted second-quarter revenue in the range of $151 million to $156 million and full-year revenue in the range of $615 million to $635 million.

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