Square plummets 15% after selling its food-delivery business and saying it will spend more

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  • Square plunged 15% on Friday after selling its Caviar food-delivery business and announcing increased spending in its second-quarter earnings report.
  • The company lowered its third-quarter earnings expectations as it plans to invest more in marketing ahead of the holiday season, when it says businesses heavily use its service.
  • Square’s Cash App brought a spot of good news, hitting $135 million in quarterly revenue after bringing in “negligible” figures immediately after its 2016 launch.
  • Watch Square trade live here.

Digital-payments company Square fell 15% in early trading on Friday after announcing the sale of its Caviar subsidiary and lowering its third-quarter revenue forecast.

The company announced its second-quarter earnings Thursday. Shares fell about 8% in after-hours trading despite beating Wall Street’s estimates for quarterly revenue and earnings per share.

Here are the key numbers:

Earnings: $0.210 versus the $0.163 estimate

Revenue: $562.8 million, versus the $557.8 million estimate

Gross payment volume: $26.8 million, versus the $26.9 million estimate

3Q revenue forecast: between $590 million and $600 million, versus the $599.5 million estimate

Square announced its sale of Caviar – a food delivery subsidiary – to DoorDash in its Thursday earnings report. The $410 acquisition is expected to close at the end of the year. Square bought Caviar for $44.3 million in 2014, according to an SEC filing.

“We look forward to welcoming the Caviar team to DoorDash and expanding our partnership with Square in the future,” DoorDash CEO Tony Xu said in a press release.

Profit expectations for the third quarter fell as Square plans to invest more in marketing and “ecosystem sales” ahead of the holiday season. The expenses will affect third- and fourth-quarter earnings figures, as “we know businesses make decisions and spending can be more effective prior to the holidays,” Square CFO Amrita Ahuja said on a call with analysts.

One spot of good news came from the company’s Cash App, a peer-to-peer payment business similar to Paypal‘s Venmo. The app’s revenue has rapidly grown from the “negligible” figures seen immediately after its 2016 launch, Ahuja said.

“The Cash App ecosystem continues to exceed our expectations. In just 3 years, Cash App revenue performed basically $0 to $135 million, excluding Bitcoin. We love you, Bitcoin,” CEO Jack Dorsey added on the call. Dorsey also serves as Twitter‘s CEO.

Square closed Thursday at $80.98 per share, up about 45% year-to-date.

The company has 17 “buy” ratings, 17 “hold” ratings, and 4 “sell” ratings from analysts, with a consensus price target of $81.35 per share, according to Bloomberg data.

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Markets Insider