01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Square, Inc. (now Block, Inc.) reported total net revenue of $1,708.7 milliona for 2016, up 35% from $1,267.1 million in 2015, and Gross Payment Volume (GPV) of $49.7 billion, up 39% from $35.6 billion.
The company remained loss-making, with a net loss of $171.6 millionb in 2016 compared with $212.0 million net loss attributable to common stockholders in 2015, and an accumulated deficit of $779.2 million at December 31, 2016. Adjusted EBITDA, a non-GAAP measure that excludes Starbucks activity, share-based compensation and other items, was $44.9 million in 2016 versus $(41.1) million in 2015. Growth was driven by transaction-based revenue, which rose $405.7 million to $1,456.2 million, and by subscription and services-based revenue, which rose 123% to $129.4 million, led by Square Capital and Caviar.
Starbucks transaction-based revenue fell 45% to $78.9 millionc as Starbucks completed its transition to another payments provider in the fourth quarter of 2016, and the company does not expect that revenue to recur. Operating loss narrowed slightly to $170.5 million from $174.5 million, though general and administrative expenses included a $48.0 million legal settlement with Robert E. Morley.
Share-based compensation rose to $138.8 milliond. Investors should note the dual-class structure, under which Class B holders controlled approximately 89.3% of voting power at December 31, 2016, and the company's reliance on card networks, acquiring processors and a single bank partner for Square Capital. Cash, cash equivalents and marketable securities totaled $539.3 million, and the company reported $23.1 million of operating cash inflow in 2016.
02—Key points
Key Highlights
- Total net revenue rose 35% to $1,708.7 million in 2016, from $1,267.1 million in 2015.
- GPV grew 39% to $49.7 billion in 2016, processed from roughly 1 billion card payments.
- Adjusted Revenue increased 52% to $686.6 million; Adjusted EBITDA swung to $44.9 million from $(41.1) million in 2015.
- Net loss narrowed to $171.6 million in 2016 from $212.0 million net loss attributable to common stockholders in 2015; the company has an accumulated deficit of $779.2 million.
- Subscription and services-based revenue grew 123% to $129.4 million, driven mainly by Square Capital and Caviar.
- Starbucks transaction-based revenue fell 45% to $78.9 million after Starbucks moved to another payments provider in Q4 2016.
- Class B shareholders held about 89.3% of voting power at December 31, 2016, concentrating control with pre-IPO holders.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, Block lost $0.10.
- Revenue$1.71B100.0%
- Cost of revenue−$1.13B66.3%
- Gross profit$576.0M33.7%
- Operating costs−$746.5M43.7%
- Operating income−$170.5M10.0%
- Interest, other & tax−$1.1M0.1%
- Net income−$171.6M10.0%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.71B$1.27B | +34.9% |
| Cost of Revenue | $1.13B$897.09M | +26.3% |
| Gross Profit | $576.04M$370.03M | +55.7% |
| R&D Expenses | $268.54M$199.64M | +34.5% |
| Operating Expenses | $746.49M$544.49M | +37.1% |
| Operating Income | -$170.45M-$174.46M | +2.3% |
| Net Income | -$171.59M-$179.82M | +4.6% |
| EPS (Basic) | $-0.50$-1.24 | +59.7% |
| EPS (Diluted) | $-0.50$-1.24 | +59.7% |
| Shares Outstanding (Basic) | 341.56M170.50M | +100.3% |
| Shares Outstanding (Diluted) | 341.56M170.50M | +100.3% |
05—Questions
Frequently Asked Questions
How fast did Square's core payment volume and revenue grow in 2016?
Gross Payment Volume grew 39% to $49.7 billion, and total net revenue grew 35% to $1,708.7 million. Transaction-based revenue, the core managed payments line, rose 39% to $1,456.2 million.
Is Square profitable?
Not on a GAAP basis. The company reported a net loss of $171.6 million in 2016 and an accumulated deficit of $779.2 million. Adjusted Net Income, a non-GAAP measure excluding items such as Starbucks activity and share-based compensation, was $15.0 million in 2016, and Adjusted EBITDA was $44.9 million.
What one-time costs affected 2016 results?
General and administrative expenses included a $48.0 million payment in the settlement of legal proceedings with Robert E. Morley, which the company classified as non-recurring. Share-based compensation also rose to $138.8 million from $82.3 million.
What are the main risks to the Starbucks revenue line and the Caviar litigation?
Starbucks completed its transition to another payments solution provider in the fourth quarter of 2016 and the company does not expect that revenue to recur. Caviar faces a class action and PAGA claims alleging couriers were misclassified as independent contractors; the parties mediated in February 2017 but have not reached agreement.
Who controls voting power at Square?
Class B common stock carries ten votes per share. Holders of Class B stock, including many executives, employees and directors, held approximately 89.3% of combined voting power at December 31, 2016, so they can control matters submitted to stockholders.
06—Continue