Can Square Clip PayPal’s Wings?


May. 10 2017, Updated 1:14 p.m. ET

Square shows it can square off with PayPal

Square’s (SQ) shrinking losses and swelling sales are bad news for PayPal (PYPL) as they hint of a growing challenge for the rival to defend its market share, let alone expand it. PayPal recently said that it has 16.0 million active merchants using its service to accept payments.

Square is eyeing the same merchant market with solutions that enable small vendors to accept card payments. Looking at how it is progressing, including with international expansion, PayPal could face a hard time recruiting merchant customers.

Merchants seem to be responding positively to Square’s pitch. The company saw its transaction volume jump 33% to $13.6 billion in 1Q17, which was largely in line with the average expectation of analysts.

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Revenues grow 22%

Square reported overall revenues of $461.6 million, up 22% from a year ago and above the consensus estimate of $450.7 million. Its net loss shrank to $15 million from $97 million a year ago. As a result, it recorded a GAAP EPS[1. generally accepted accounting principles earnings per share] loss of $0.04 versus its EPS loss of $0.08 that analysts were expecting.

Wringing money from a crisis

The introduction of chip-enabled payment cards caused disruptions to vendors and shoppers because of problems with slow transactions. However, that has created an opportunity for Square to make money. While it takes an average of 13 seconds to complete a payment using a chip-enabled card, according to a Wall Street Journal report, Square says using its system reduces the transaction time to less than four seconds.

Supporting speedy card transactions is one of the advantages Square enjoys against the competition and a reason merchants are warming up to its system.

Square is expanding abroad, and it recently entered its fourth international market—the UK (EWU). In addition to the US (SPY), the service is available in Canada, Australia, and Japan (EWJ).

Correction: This article originally noted an adjusted EPS loss of $0.04 rather than a GAAP EPS loss of $0.04.


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