Square’s continued profitability could help it expand its merchant and consumer businesses

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The firm’s gross payment volume (GPV) reached $28.2 billion in Q3 2019, growing 25% year-over-year (YoY), marking a slight deceleration from the 29% annual growth it posted in the metric in Q3 2018, per its earnings release. Square’s total revenue performance for the quarter saw similar results: It racked up nearly $1.27 billion, increasing 47% YoY, but decelerated from 51% YoY growth in the comparable period a year ago, despite its significant total.

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Square’s merchant business was likely a key driver of the firm’s second-ever profitable quarter. The company turned in $29 million in net income this past quarter, up from $20 million in Q3 2018, which was Square’s first profitable quarter.

This performance may have been propelled by its merchant segment, as its subscriptions and services business brought in nearly $280 million in revenue and had expenses of just $63 million, for around a $216 million difference. That’s notably better than what it turned in during Q3 2018, when its revenue totaled $166 million and its costs were $47 million, which was a $119 million difference.

This profitability may empower Square to invest in and expand its suite of offerings for both merchants and consumers, which is key for competing in those competitive markets.

• For sellers, the retailer is adding new services and solutions that can grow its appeal and reach. Square has introduced in-store solutions like Square Terminal and Square Register as well as omnichannel and online solutions like Square Orders, all of which may be costly to develop and scale but have the potential to attract new merchants and revenue opportunities. For example, more than 30% of Square Terminal and Square Register merchants are new to Square, and the firm may be able to afford such efforts because its business is profitable.
• Meanwhile, it’s adding new consumer-facing features to its Cash App that could propel that part of its business. The peer-to-peer (P2P) platform brought in $159 million in revenue, excluding Bitcoin, in Q3, which was up 115% YoY, so its performance is already on the rise. And with the introduction of tools like its new stock trading offering, it could grow rapidly going forward. Because it may not need to worry too much about the segment’s profitability, it might be able to make its fees and other charges for such services extremely competitive, potentially making them more popular and impactful.

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