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Fintech company Square (NYSE: SQ) has performed incredibly well for its investors. The stock is up by about 450% over the past three years and has risen by 106% in 2018 alone.
However, this doesn't mean Square is too expensive. In fact, the company's recently released second-quarter earnings show us exactly why the stock has done so well. Here are five particularly important takeaways from the report that investors should know.
Image source: Square.
Growth is accelerating
Perhaps the most impressive aspect of Square's growth story isn't just that the business is growing revenue at a 48% annualized rate. Rather, it's that the growth rate is steadily accelerating quarter after quarter.
| Metric | Q2 2018 YOY Growth Rate | Q1 2018 YOY Growth Rate | Q2 2017 YOY Growth Rate |
|---|---|---|---|
| Total net revenue | 48% | 45% | 26% |
| Gross payment volume | 30% | 31% | 32% |
| Adjusted revenue | 60% | 51% | 41% |
Data source: Square 2Q18 earnings release.
Notice that the growth in gross payment volume has slightly decreased. As Square's core business of providing payment-processing hardware gets larger and larger, it's natural that its growth rate will start to slow a bit. However, the fact that revenue is rising in spite of this indicates that the company is doing an excellent job of driving growth in its other business segments, which we'll get to in a bit.
Industry-specific products are catching on
In recent years, Square has started selling industry-specific POS products, such as Square Appointments for service-based businesses and Square for Retail for retail businesses. During the second quarter, Square introduced its Square for Restaurants POS system, which could be a big deal for the company's payment volume growth.
Here's why. Square estimates that full-service restaurants represent about $200 billion of annual sales in the U.S. alone. What's more, Square's restaurant offerings could help bring some larger businesses into the company's ecosystem. Traditionally, Square's products have resonated with smaller merchants, with 78% of the gross payment volume (GPV) coming from sellers with less than $500,000 in annual GPV each. However, the average Square for Restaurants user has annual GPV of more than $650,000.
Another restaurant-specific product, the Caviar food-ordering platform, is growing at an incredible rate and is one of the reasons for the accelerated growth. In fact, Caviar revenue has more than doubled over the past year.
The Cash app is growing exponentially
One of Square's largest focus areas recently has been its Cash app, and it looks like its efforts are paying off nicely. In May, Square launched its Cash Boost feature, which incentivizes people to use the Cash Card at certain merchants by offering discounts. Additionally, the company has taken steps to integrate the Cash app into other Square products, such as the Caviar platform I discussed earlier.