February 27, 2019 / 9:15 PM / in a month

Square forecasts first quarter profit below estimates; shares fall

(Reuters) - Payments company Square Inc on Wednesday forecast current-quarter profit well below Wall Street estimates, as it cited investments it is making in its business, sending its shares down 6 percent in after-hours trading.

For the first quarter, Square said it expects adjusted earnings per share of 6 cents to 8 cents, below the average analyst estimate of 11 cents.

The San Francisco-based company, whose chief executive, Jack Dorsey, is also CEO of Twitter Inc <TWTR.N, noted that its first quarter is typically its slowest in terms of sequential growth due to seasonal factors.

“We are making deliberate investments in our business earlier in the year, beginning in Q1, which we expect to drive growth from the medium to the long term,” Chief Financial Officer Amrita Ahuja said on a call with analysts following the release of fourth-quarter results.

Square, which is best known for its signature white credit-card readers that are plugged into smartphones, has been aggressively expanding into a wider range of financial services for small businesses and consumers, from lending to peer-to-peer payments.

In January it launched a free debit card for small businesses aimed at helping them better manage cash flow. The MasterCard debit card allows companies to spend funds from sales processed via Square’s payments systems as soon as the sale has been made.

“This is a way for us to continue to serve underserved and unbanked sellers so that they can start a business without even going to a bank,” Dorsey said on the call.

Square also offers a debit card to individuals connected to Cash App, its mobile payments service that has grown in popularity over the past year. The company said Cash App had more than 15 million monthly active customers in December, more than double year over year.

Ahuja, who joined Square in January, said Cash App was making a meaningful contribution to revenues through fees on its instant deposit service and interchange on the debit card, as well as spreads on cryptocurrency buying and selling.

For the fourth quarter, total operating expenses jumped 51.5 percent to $383.2 million as the company spent more on product development, sales and marketing.

The company said its net loss bit.ly/2tI4MaK widened to $28.2 million, or 7 cents per share, in the quarter ended Dec. 31, from $15.7 million, or 4 cents per share, a year earlier.

On an adjusted basis, the company earned 14 cents per share, brushing past estimates of 13 cents, according to IBES data from Refinitiv.

Total revenue surged 51 percent to $932.5 million.

Reporting by Anna Irrera in New York and Bharath Manjesh in Bengaluru; Editing by Shinjini Ganguli and Leslie Adler

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