A Look at Square’s ‘Black Sheep’
Hardware sales fell 7%
Square (SQ) has posted strong 2Q17 results, with sales and earnings coming in above expectations. But on its segment results, its hardware business once again emerged as the “black sheep” of the quarter.
Hardware revenue of $10.0 million for 2Q17 fell 7.0% from a year earlier. Hardware sales plunged 44.0% to $9.0 million.
Square explained that the year-over-year fall in hardware revenue in the latest quarter stemmed from tough comparisons. The year-ago quarter registered unusually strong hardware sales because of new readers.
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Square doesn’t rely on hardware
The quarter-over-quarter growth in hardware revenue suggests that Square continues to squeeze revenue from its hardware business.
Square doesn’t rely on hardware sales for most of its revenue. Transactions carry most of the company’s weight. Transaction-based revenue rose 32.0% to $482.0 million in 2Q17, accounting for more than 87.0% of its total revenue. But this is a highly competitive space where Square is battling it out with PayPal (PYPL) and Apple (AAPL).
Credit line drives service sales
Square said its subscription and services revenue rose 99.0% to $59.0 million in 2Q17. Gains in this segment were driven mainly by a continued strong demand for services such as Instant Deposit, which allows merchants to receive payments in their bank accounts shortly after a buyer makes a payment. Square Capital, the company’s credit line, also supported the gains.
Square’s overall revenue for 2Q17 rose 26.0% to $552.0 million, as you can see in the above chart.