Square Earnings: Brilliant Execution And Long-Term Potential

Square (SQ) provided a double surprise to investors on Tuesday. The company was originally scheduled to report earnings on Wednesday but it had to release the numbers on Tuesday instead "due to early external access of the company’s quarterly financials" according to the press release.

Not only were the numbers released sooner than expected, but they were also surprisingly good considering the circumstances. Square is performing exceptionally well in a challenging period, and a log-term bullish thesis for Square looks healthier than ever.

Impressive Resiliency From The Seller Ecosystem

One of the main reasons for concern among investors in Square leading to the earnings report was the company's large exposure to small businesses and especially restaurants in the seller ecosystem. These kinds of businesses have been particularly affected by the pandemic during the second quarter, and this is arguably the main uncertainty factor weighting on Square stock.

But the company is doing a great job of providing the tools for sellers to adapt to a new environment and continue thriving under all kinds of challenges. Square is making it easier for sellers to develop an online presence with tools such as Square Online Checkout, which allows sellers to sell online without building their own website.

The company also launched On-Demand Delivery during the quarter, this is a platform that provides sellers with access to a platform of third-party delivery apps. Because of the scale advantages provided by Square, sellers using On-Demand Delivery retain better margins in comparison to directly using other third-party delivery services.

A key driver during the quarter was expanding online channels. Gross Payment Volume (Nasdaq: GVP) from online channels was up more than 50% year over year during the quarter, and it accounted for more than 25% of total seller GPV. As a comparison, only 11% of total GPV was coming from online in the second quarter of 2018.

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Disclosure: I am/we are long SQ, PYPL.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship ...

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