01—Abstract
Summary
Summary of the 10-K filed February 26, 2020. Cited figures are marked; the original filing is the authoritative source.
Square, Inc. reported total net revenue of $4.71 billiona for 2019, up 43% from $3.30 billion in 2018, and net income of $375.4 million, compared with a net loss of $38.5 million in 2018.
The result was helped by a $373.4 millionb gain on the sale of the Caviar business to DoorDash, which closed on October 31, 2019 for $410 million in gross proceeds ($310 million cash and $100 million of DoorDash preferred stock). Operating income was $26.6 million versus an operating loss of $36.6 million in 2018. Growth was led by transaction-based revenue of $3.08 billion (up 25%), subscription and services-based revenue of $1.03 billion (up 74%), and bitcoin revenue of $516.5 million (up 210%).
Gross Payment Volume reached $106.2 billionc, and Adjusted EBITDA was $416.9 million versus $256.5 million in 2018. Cash App, the company's peer-to-peer and financial services app, had approximately 24 million monthly active customers as of December 2019 and stored balances of $676 million, up 102% year over year. Sales and marketing costs rose 52% to $624.8 million, driven largely by Cash App marketing and peer-to-peer costs.
The company held $2.1 billiond of cash, cash equivalents, restricted cash and marketable debt securities at year-end, and carried $1.1 billion of convertible senior notes in principal amount, with a $375.0 million revolving credit facility undrawn. Investors should weigh the dual-class structure, under which Class B holders controlled about 69.5% of combined voting power at December 31, 2019, and the unresolved San Francisco Gross Receipts Tax dispute, with potential losses of approximately $0 to $63 million. The company also disclosed that it expects to change from one reportable segment to two (Seller and Cash App) in 2020.
02—Key points
Key Highlights
- Total net revenue of $4,713.5 million in 2019, up 43% from $3,298.2 million in 2018.
- Net income of $375.4 million in 2019, including a $373.4 million gain on the sale of the Caviar business, compared with a net loss of $38.5 million in 2018.
- Gross Payment Volume (GPV) of $106.2 billion in 2019, up from $84.7 billion in 2018; transaction-based revenue rose 25% to $3,081.1 million.
- Subscription and services-based revenue rose 74% to $1,031.5 million, driven primarily by Cash App, Square Capital and Instant Transfers.
- Adjusted EBITDA of $416.9 million in 2019 versus $256.5 million in 2018; share-based compensation was $297.9 million.
- Cash App had approximately 24 million monthly active customers and $676 million in stored balances as of December 31, 2019, up 102% year over year.
- Class B common stock held approximately 69.5% of combined voting power at December 31, 2019, and the company is subject to a San Francisco Gross Receipts Tax dispute with potential losses of approximately $0 to $63 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Block kept $0.08.
- Revenue$4.71B100.0%
- Cost of revenue−$2.82B59.9%
- Gross profit$1.89B40.1%
- Operating costs−$1.86B39.5%
- Operating income$26.6M0.6%
- Interest, other & tax$348.9M7.4%
- Net income$375.4M8.0%
Where FY2019 revenue went
$4.71B- Cost of revenue: $2.82B, 60% of revenue
- Other operating costs: $1.19B, 25% of revenue
- R&D: $674.2M, 14% of revenue
- Operating income: $26.6M, 0.6% of revenue
Kept 0.6% as operating incomeOperating income $26.6M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 26, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $4.71B$3.30B | +42.9% |
| Cost of Revenue | $2.82B$1.99B | +41.6% |
| Gross Profit | $1.89B$1.30B | +44.9% |
| R&D Expenses | $674.16M$497.48M | +35.5% |
| Operating Expenses | $1.86B$1.34B | +39.0% |
| Operating Income | $26.56M-$36.61M | +172.5% |
| Interest Expense | $44.90M$37.80M | +18.8% |
| Net Income | $375.45M-$38.45M | +1076.4% |
| EPS (Basic) | $0.88$-0.09 | +1077.8% |
| EPS (Diluted) | $0.81$-0.09 | +1000.0% |
| Shares Outstanding (Basic) | 425.00M405.73M | +4.7% |
| Shares Outstanding (Diluted) | 466.08M405.73M | +14.9% |
05—Questions
Frequently Asked Questions
What drove the swing from a net loss in 2018 to net income in 2019?
The company reported net income of $375.4 million in 2019 compared with a net loss of $38.5 million in 2018. The filing attributes a $373.4 million gain on sale of asset group, from the sale of the Caviar business to DoorDash, to this result. Operating income also improved to $26.6 million from an operating loss of $36.6 million.
How fast are the company's main revenue streams growing?
Total net revenue grew 43% in 2019. Subscription and services-based revenue grew 74%, transaction-based revenue grew 25%, hardware revenue grew 23%, and bitcoin revenue grew 210%. The filing notes that bitcoin revenue will fluctuate with bitcoin price volatility and customer demand.
What is the status of Cash App?
As of December 2019, Cash App had approximately 24 million monthly active customers, and stored balances reached $676 million at December 31, 2019, an increase of 102% year over year. Cash App offers peer-to-peer payments, the Cash Card, Cash Boost rewards, bitcoin buying and selling, and equity investing. The company notes that peer-to-peer and Cash Card costs are recorded as sales and marketing expense.
What are the key risks related to ownership of the Class A stock?
Holders of Class B common stock, which has ten votes per share, held about 69.5% of combined voting power at December 31, 2019, so they control matters submitted to stockholders. The company also has anti-takeover provisions, a Delaware exclusive forum provision, and does not intend to pay dividends in the foreseeable future.
What debt and liquidity obligations does the company carry?
At December 31, 2019, the company had $211.7 million of 2022 Notes (0.375%) and $862.5 million of 2023 Notes (0.50%) in principal amount. It had cash, cash equivalents, restricted cash and marketable debt securities of $2.1 billion, and a $375.0 million revolving credit facility with no amounts drawn. The company expects to settle future note conversions in Class A shares.
06—Continue