Square earnings, what it means for the Afterpay (ASX:APT) share price?

Taking a look under the hood of Square’s latest earnings report…

| More on:
A hipster dude leaps in the air with glee, seeing positive news on his tablet.

Image source: Getty Images

There has been a lot of excitement around Square Inc (NYSE: SQ) planning to acquire Afterpay Ltd (ASX: APT). The acquisition news has sent the share price higher this week. In the hubbub, you might have missed the latest earnings report from the US-based payments company.

If and when the deal is done, Afterpay shareholders will effectively become Square shareholders. As such, it’s worth taking a look at how Square performed over the last quarter.

Square’s Q2 FY21 earnings and the Afterpay acquisition were announced on the same day. Because of this, it’s hard to tell which news investors were predominantly reacting to. Either way, it led to a 10% jump in Square shares.

Let’s review the results.

Square jumps on revenue more than doubling

Much like its acquisition target, Square can put on some impressive figures of its own. According to the release, net revenue in the second quarter increased 143% year over year (YOY) to US$4.68 billion.

For investors not fond of cryptocurrency, the company’s net revenue increased by 87% YOY to US$1.96 billion, excluding Bitcoin (CRYPTO: BTC).

Speaking of Bitcoin, customer transactions with the cryptocurrency skyrocketed compared to the same time last year. This resulted in Square’s bitcoin revenue roughly tripling on a YOY comparison.

Similarly, gross profit for the company jumped 91% YOY to US$1.14 billion. This was a team effort between the ‘Cash App ecosystem’ and the ‘Seller ecosystem’.

In June, Cash App reached 40 million monthly transacting active customers. Meanwhile, the Seller ecosystem achieved an 86% increase YOY on gross payment volume to US$38.8 billion.

The US$122.7 billion company finished the quarter with US$6.6 billion of cash at its disposal. Remember, the Afterpay acquisition is in exchange for Square shares, so this large cash pile should still be available.

Finally, for potential new Square investors – the company also acquired a majority stake in music streaming platform Tidal in April.

What it means for the Afterpay share price

If all goes ahead, Afterpay will come under the Square umbrella in the near future. Co-founder and CEO of Square Jack Dorsey said:

Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles. Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.

By the looks of it, the US payments company plans to integrate Afterpay into its own offerings to make buy now, pay later an option to merchants of all sizes. For example, think of the craft store at your local markets offering BNPL.

In short, Square’s continued growth momentum bodes well for Afterpay shareholders as it potentially opens the door for more Afterpay merchants. Additionally, until further notice, the Afterpay share price is somewhat intrinsically linked to the success of Square.

Should you invest $1,000 in Afterpay right now?

Before you consider Afterpay, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Afterpay wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Mitchell Lawler owns shares of AFTERPAY T FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Bitcoin, and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Technology Shares