Square’s (NYSE: SQ) growth has been accelerating recently — and that trend was extended in its just-reported fourth quarter. The financial technology company’s fourth-quarter adjusted revenue soared 47% year over year. This compares to 45% growth in Q3.
The acceleration in its growth really has been impressive. Year-over-year growth rates in total revenue and adjusted revenue have risen from 22% and 39%, respectively, in the first quarter of 2017 to 47% and 36% in Q4.
Data source: Square quarterly shareholder letters. Square’s adjusted revenue excludes transaction-based revenue from Starbucks and transaction-based costs. * Year over year. Table by author.
But can Square keep up this momentum, or will the drivers behind its growth prove to be short-lived? To help investors understand what’s behind this impressive growth, here’s a closer look at three crucial factors in the company’s fourth quarter.
Square recently launched Square Register as the company aims to attract more large sellers. Image source: Square.
1. Large sellers are driving significant growth
One of the biggest drivers of this accelerating growth has been a consistent theme of the increasing contribution of large sellers to Square’s business. The impact of large sellers, which Square defines as sellers generating over $125,000 in annualized gross payment volume (GPV), on growth was particularly evident in Q4.
“We continue to see strength in larger sellers, with GPV from this segment growing 44% year over year and representing 47% of total GPV,” Square said in its fourth-quarter shareholder letter.
In Square’s fourth quarter of 2016, large sellers accounted for just 43% of GPV.
2. New products are making an impact
One way Square has been able to grow its business rapidly is by continually launching new products and services. In May 2014, for instance, Square launched Square Capital, or a business financing service that made loans to 47,000 businesses in the fourth quarter alone. In 2015, Square launched its first payroll service. In 2016, it introduced Virtual Terminal, or a tool that allows sellers to accept payments online.
New products and services have been key to Square’s growth.
“We continue to create meaningful vectors of growth: In the fourth quarter of 2017, revenue from products launched since 2014 was 22% of total net revenue and 36% of Adjusted Revenue, up from 14% and 25%, respectively, in the prior year period,” Square explained in its fourth-quarter shareholder letter.
3. Square’s Cash App is just getting started
One Square product that has really taken off recently is Square’s Cash App, or a peer-to-peer payment app that Square views as a consumer platform it can expand over time with the introduction of new financial tools.
2017 was arguably the year that Square’s Cash App finally achieved meaningful scale and broad-based appeal. During the year, the app soared in the Apple App Store rankings from the 123rd most downloaded free app to No. 35 by the end of the year. It also ended the year as the top finance app — and it remains ranked No. 1 today.
While Square Cash was launched in 2013, the company has been particularly aggressive with its efforts to launch new features for the consumer-focused financial platform more recently. “In the same way that we have empowered businesses with fast, simple, and cohesive financial tools, we are building a similar ecosystem of services for individuals with Cash App,” Square said in its fourth-quarter shareholder letter.
Recently launched features for the Cash App include the ability to receive direct deposit payments and ACH payments, a Visa debit card for withdrawing funds at ATMs, and the ability to buy and sell bitcoin.
Monthly active customers for Square Cash, which Square defines as customers that have at least one cash inflow or outflow during the period, have reached 7 million as of December.
Given its growing ability to attract large sellers to its platform, its prowess in launching new products that contribute meaningfully to its business, and its nascent and promising consumer efforts with the Cash App, 2018 looks poised to be another year of strong growth for Square.
