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Square slammed as Q1 falls short of market expectations

The NYSE stock is set to open nearly 20% lower than Thursday’s close after first quarter results fell short of Wall Street expectations.

A mobile chip-n-pin reader, sold by Square Inc
Square's contactless and chip-reader technology

Square Inc (NYSE:SQ), Jack Dorsey’s mobile payments business, lost a fifth of its stock market value in after hours dealing on Thursday as first quarter results fell short of expectations.

In the opening quarter of Square’s first full year as a listed company – it floated on the NYSE in a November 2015 IPO – the company reported a 14 cents per share loss on US$379mln of revenue.

That compares against consensus analyst forecasts of 9 cents per share, and US$344mln of revenue.

Despite the miss, Square actually increased its guidance for the full year, highlighted momentum for its contactless payments and chip readers (which connect to mobiles) and claimed the core business was “really strong”.

Plainly, Wall Street was less upbeat.

Changing hands at US$10.70 per share ahead of Friday’s closing bell Square’s NYSE listed shares were down 18.35% from Thursday’s close of US$13.08.

Dorsey took heat last year as he returned to run Twitter Inc (NYSE:TWTR), with critics questioning whether he would be able to give both companies enough attention.

Both companies disappointed in the first quarter of 2016.

Last month Twitter reported quarterly revenue of US$595mln, which was also short of market expectations. The microblogging social network said revenue was at the lower end of its guidance because of a slowdown of spending among brand marketers.

Broker Wedbush downgraded its view on Square as it now sees the stock as ‘underperform’ and cut its price target to US$9 from US$11 per share.

Analyst Gil Luria, in note, highlighted the possibility of more pain for shareholders as ‘lockup’ arrangements – which have prevented certain holders from selling following last year’s IPO – are due to expire.

Luria’s view of the business fundamentals weren’t positive either.

“We believe that Square is rapidly growing a business that may never reach peer (or guided) profitability, which will become apparent as growth slows over the next couple of years on competition and saturation,” the analyst said.

He said: “We expect Square's growth to decelerate over the next couple of years as it gets boxed in by intensified competition from PayPal Here, Intuit, SaaS competitors and traditional acquirers.”

Luria reckons the total addressable market for Square amounts to less than 5mln small and medium sized businesses, and as such he says the group is already close to reaching saturation.

Raising US$243mln in November’s IPO (selling shares at US$9), Square’s Wall Street float valued the company at US$2.9bn.

Quick facts: Square inc

Price: 141.96 USD

NYSE:SQ
Market: NYSE
Market Cap: $62.96 billion
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