How Does Hardware Impact Square’s Business?
Fast and accurate checkout
Ahead of the release of its 3Q17 earnings results, Square (SQ) launched a new checkout device called Square Register, which it described as its first all-in-one hardware offering. The register, which costs $999, is aimed at large sellers, and it is designed to simplify and speed up checkout.
For checkout purposes, the register consists of two displays: one for the seller and another for the customer. According to Square, the register’s customer display is designed to increase transaction accuracy and speed and to help in establishing a strong relationship between the seller and the buyer. Square hopes the device will help it boost customer retention amid competition from PayPal (PYPL).
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Impact of register to be assessed in 4Q17 scorecard
Square launched the register at a time when growth in its hardware business has moderated compared to growth levels recorded in the first half of 2016, or 1H16. In 1H16, Square’s hardware business benefited from merchants upgrading to new checkout devices that the company was rolling out.
Since new hardware products have tended to drive up Square’s hardware sales, focus is on how Square Register will impact Square’s top line. The first impact of the register on Square’s top line is expected to occur in the current quarter, 4Q17. US (SPY) merchants tested the product before it launched broadly, and the device is expected to roll out to Square’s overseas merchant customers in places like the UK (EWU) and Japan (EWJ).
Hardware is a small piece of the pie
Square’s financial statements reveal that the contribution of its hardware business to the overall top line has fallen. In 3Q17, hardware contributed 1.7% of Square’s overall revenue compared with a little over 1.8% in the year-ago quarter. Square’s hardware sales rose 23% YoY (year-over-year) to $10 million in 3Q17, while overall revenue rose 33% YoY.