Square Inc. on Wednesday played up its recent launch of an important new hardware product and celebrated what it called its first quarter of profitability under generally accepted accounting principles.
While executives did not discuss sales numbers for Square Terminal, a $399 touchscreen-equipped handheld device the San Francisco-based company released this summer, chief executive Jack Dorsey let it be known in a presentation to stock analysts he’s expecting big things from the new product. “We believe this is huge,” he said. “This is a release we’ve been really excited about for a long time.”
Dorsey sees Square Terminal, which comes capable of running contactless and contact EMV transactions as well as mag-stripe swipes, replacing conventional point-of-sale devices on merchants’ counters and ultimately functioning as pay-at-table equipment at restaurants, a retail sector the company has been working hard to penetrate. “The black rectangular box”—Dorsey’s term for conventional POS devices—“is a dinosaur,” he declared.
The terminal will also help Square recruit new merchants, he told the analysts who tuned in for the company’s third-quarter results. “It’s an acquisition tool for us,” he said, “removing another excuse not to join the Square ecosystem.” Sarah Friar, Square’s outgoing chief financial officer, underscored that point by referring to a potential replacement market of some 2 million POS terminals “in the U.S. alone” for the new product.
Ironically for Square, which started out in 2009 with a card-reading dongle small sellers could plug into their smart phones, the new device is apparently a response to merchants’ aversion to reaching for their own equipment. “One thing we hear from sellers is they don’t want to use their personal device,” Dorsey said.
Square enjoyed what on the surface appears to be a profitable quarter, with $20 million in net income, compared to a $6 million loss in the second quarter and a $16 million loss in the year-ago quarter. But while Friar said the quarter was “technically” the company’s first period of GAAP profitability, she was quick to add it actually logged a $20 million net loss when factoring out a $37-million gain it reaped from a $1.8 billion initial public offering staged in September by Eventbrite, an online ticketing agent in which Square held an interest.
The two executives continued to be enthusiastic about another relatively new product, the Cash Card, a Visa-branded card linked to the Square Cash App. While the company has stopped releasing numbers for the app, it “has been a pretty important driver for us,” Dorsey said. “People use it as you would a bank account. We’re really excited about the continuing momentum, and we’re pretty excited about what we can build on top of it.”
The card, less than a year old, is more than a peer-to-peer payment service, Dorsey added, referring to it as “more of a banking service.” Users can buy and sell Bitcoin with the app, for example, he said. Square for the quarter earned nearly $43 million in revenue on Bitcoin transactions while posting $42.4 million in costs on the cryptocurrency.
For this reason, Square will probably avoid the kind of social-media channel PayPal Holdings Inc.’s Venmo app has created, Dorsey said. “We have the opportunity to open a channel in the Cash App,” he said. “But probably not as our peers have done.”
For the quarter, Square posted revenue of $882.1 million, though this number includes acquisitions such as its $325-million deal in April for Weebly Inc., a creator of Web stores for entrepreneurs. Gross payment volume totaled $22.5 billion, up 29% year-over-year. The company now derives 52% of its payment volume from so-called larger sellers, those generating at least $125,000 in annualized volume.
Square announced last month that Friar will leave in December to become chief executive of Nextdoor, which offers a messaging app for neighborhoods. The company has been interviewing replacement candidates and is “really happy with the talent we’re seeing,” Dorsey said, though he added he “will not share a timeline” for installing a new CFO.