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Square falls 7% after forecasting lower-than-expected guidance

Key Points
  • Adjusted third-quarter earnings per share guidance came in below Wall Street estimates. The company issued a range of between 18 cents and 20 cents per share, compared to 22 cents analysts had expected. 
  • Square announced a deal to sell its food delivery company Caviar to DoorDash for $410 million.
  • Square's gross payment volume came in at $26.8 billion vs. $26.9 billion Wall Street had expected. 
Jack Dorsey, co-founder and chief executive officer of Twitter Inc., speaks during an interview in New York, U.S., on Monday, May 1, 2017.
Michael Nagle | Bloomberg | Getty Images

Shares of Square dropped as much as 8% in after-hours trading Thursday after the payments company issued weaker-than-expected guidance. The company still beat analysts' earnings and revenue expectations for the second quarter.

Here's how Square did compared with what Wall Street was looking for:

  • Earnings: 21 cents per share, vs. 17 cents forecast by Refinitiv.
  • Adjusted revenue: $563 million vs. $557.1 million, forecast by Refinitiv.

Adjusted third-quarter earnings per share guidance came in below expectations. The company forecasted a range of between 18 cents and 20 cents per share, compared to 22 cents analysts had expected. Square did not update its full-year guidance.

"The third quarter is an important time for us to invest," Square CFO Amrita Ahuja said on a call with reporters. "We expect these investments to benefit us and to drive growth in the future."

Adjusted revenue rose to $563 million in the second quarter, a 46% jump year over year. Gross payment volume came in at $26.8 billion vs. the $26.9 billion Wall Street had expected. More than half of Square's payment volume came from larger sellers.

The company updated investors on its popular peer-to-peer Cash App — largely seen as a competitor to PayPal's Venmo. Excluding bitcoin trading, which launched on the app last January, revenue on the app came in at $135 million for the second quarter. That's up from "negligible" revenue when the app first launched three years ago, Ahuja said on a call with analysts.

The CFO said the Square Cash debit card was "driving daily utility" as customers "increasingly used the cash card as a spending tool." In June, Square said in its shareholder letter that roughly 3.5 million people used the card for daily purchases like food, groceries, transportation or at big box retailers. Square also launched a debit card for businesses in January.

Square also announced a deal to sell its food delivery company Caviar to DoorDash for $410 million. The acquisition will be a mix of cash and DoorDash preferred stock and is expected to close at the end of this year. According a securities filing, Square bought Caviar for $44.3 million in 2014.

CEO Jack Dorsey, who also runs Twitter, said in the move was meant to increase Square's focus on its business and consumer ecosystems.

"We have seen a lot of opportunity to strengthen both these ecosystems but those opportunities require more focus and more investment," Dorsey said on a call with analysts. "To increase our focus, we decided to sell our Caviar business to DoorDash."

Square's stock had been on a tear this year with a more than 40% rally since January, compared to a 20% rise in the S&P 500.

The San Francisco-based company is best known for its credit card processor, payment hardware and growing Cash App. Square also facilitates small business loans through Square Capital. During the second quarter, Square facilitated 78,000 loans totaling $528 million — a 36% jump year over year.

The company also applied for a special industrial loan company license that allows less traditional financial firms to accept government-insured deposits. When asked on the call, Square said it did not have an update on the status of its banking application.