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Can Square Keep Up the Pace in the Fastest-Growing Division?

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Subscription and Services revenue rose 155%

Square (SQ) operates three main business divisions: Transaction, Subscription and Services, and Hardware. The Subscription and Services division has been the company’s fastest-growing division. Revenue in the division rose 155% YoY (year-over-year) in the third quarter of 2018, outpacing the 29% YoY growth in the Transaction division and the 74% YoY growth in the Hardware division in the same period.

Revenue growth in the Subscription and Services division accelerated from 127% YoY in the second quarter and 98% in the first quarter.

Division houses several operations

Square’s Subscription and Services division houses several operations. Included in this division are restaurant food delivery service Caviar, credit service Square Capital, and peer-to-peer money transfer service Cash App. Square Capital is Square’s business-lending arm. Square competes in this space with the likes of PayPal (PYPL) and OnDeck Capital (ONDK), whose revenues rose 14% and 45% YoY, respectively, in the third quarter. Last year, Square secured a deal to lend to eBay (EBAY) sellers.

$15.5 billion opportunity in food delivery

There’s a huge growth opportunity ahead for Square’s restaurant food delivery service, Caviar. According to data from Pentallect, the third-party restaurant meal delivery market in the United States alone is on track to almost double to $15.5 billion by 2022 from $8.5 billion in 2017. Square’s Caviar is competing for this revenue opportunity with GrubHub (GRUB), whose revenue rose 52% YoY in the third quarter. Former Square CFO Sarah Friar told CNBC last year that Caviar was growing at a rate of 100% annually.

Last year, Square acquired corporate catering provider Zesty and website builder Weebly to strengthen its Subscription and Services division.

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