August 1, 2019 / 8:28 PM / 17 days ago

Square third-quarter profit forecast falls short on higher Cash App spending

(This Aug. 1 story removes reference to cash card in paragraph 6. The story was earlier corrected to say “3.5 million active Cash Card users,” not “3.5 million active users” in the same paragraph)

(Reuters) - Square Inc forecast third-quarter profit below analysts’ estimates on Thursday as it spends heavily on its Cash App business to catch up with rivals such as PayPal Holdings Inc’s Venmo, sending its shares down 7% in extended trading.

The company, founded and led by Twitter Inc Chief Executive Officer Jack Dorsey, also said it would sell its food-ordering platform Caviar to DoorDash for $410 million in cash and preferred stock.

Square’s Bitcoin-friendly Cash App allows users to send money for free. The app charges businesses fees when users instantly deposit money from the app into their bank accounts.

The company said it would spend more on expanding and marketing services that cater to businesses such as Square Capital and Instant Deposit.

“We expect most of our incremental seller ecosystem sales and marketing expenses to land in Q3 and the early part of Q4 when we know businesses make decisions and spend can be more effective prior to the holidays,” Chief Financial Officer Amrita Ahuja said on a call with analysts.

Square said it more than doubled its marketing expenditure on Cash App in the reported quarter.

Gross payment volume, the total dollar amount of all card payments processed by sellers, rose 25% to $26.8 billion in the quarter, marginally missing analysts’ estimates of $26.95 billion.

Subscription and services-based revenue, which includes Cash App, rose 87% to $251.4 million in the quarter.

The company estimated adjusted earnings per share of 18 to 20 cents for the third quarter, below analysts’ expectations of 22 cents, according to IBES data from Refinitiv.

Square's net loss widened to $6.7 million, or 2 cents per share, in the three months ended June 30 from $5.9 million, or 1 cent per share, a year earlier. (bit.ly/2Yywrb3)

On an adjusted basis, the company earned 21 cents per share, while analysts had expected a profit of 17 cents.

Total net revenue rose 44% to $1.17 billion in the second quarter.

Square’s stock, which has risen 44.5% this year, fell to $75.50 after closing at $80.98.

The company widened its full-year net loss forecast to between 10 cents and 6 cents per share, from the previous 9 cents to 5 cents, as a result of a drop in the valuation of its investment in Eventbrite.

Reporting by C Nivedita in Bengaluru; editing by Sriraj Kalluvila and Richard Chang

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