Square Faces Questions on Lending Strategy as Shares Tumble
May 06 2016 - 3:00PM
Dow Jones News
Shares in payment provider Square Inc. fell Friday at the
fastest clip since the company's initial public offering, a day
after the firm reported deepening losses and slow growth in its
lending business.
Square's shares fell as much as 20% Friday before recovering
slightly. In afternoon trading, Square shares were down about
18%.
The San Francisco company run by Twitter Inc. co-founder and
Chief Executive Jack Dorsey said it posted a first-quarter loss of
$96.8 million, wider than its year-earlier loss of $48 million.
Excluding costs like taxes and stock compensation, the loss of
$9 million was less than the $20 million in the first quarter of
2015. The company said it planned to earn $14 million on that
adjusted basis for the full year.
Square is best known for the white devices it sells to small
businesses to accept and process payments, but the company has
recently been investing in ancillary services like loans. But that
unit, Square Capital, reported loan growth of just 4% compared with
the fourth quarter of 2015.
BTIG analyst Mark Palmer said in a research note that the small
increase in loan volume was "a source of concern" and said the
delay in signing up new investors for Square Capital's loans
"likely raised a few eyebrows among shareholders."
The company said "more challenging credit-market conditions"
were a reason for the slow growth, as two new, unnamed investors
delayed their purchases of Square Capital credits.
Square finance chief Sarah Friar said on a conference call with
analysts Thursday that lending is a good business for Square to be
in. Unlike competitors that have to spend a lot of money upfront to
find borrowers and get them to apply, Square already has a large
base of potential small-business customers that use its payments
service.
"There is still tremendous demand [for Square loans] and I think
we're only beginning to scratch the surface of what's available to
us," she said.
Nevertheless, some analysts questioned that as a long-term
strategy. Gil Luria of Wedbush Securities called Square Capital a
"risky growth engine" that "significantly amplifies an already
highly cyclical growth profile."
On Deck Capital Inc., another online small-business lender, also
reported a drop-off in investor demand for its loans in the
beginning of the quarter, causing its shares to plunge by nearly a
third in value on Tuesday.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
May 06, 2016 14:45 ET (18:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Block (NYSE:SQ)
Historical Stock Chart
From Apr 2024 to May 2024
Block (NYSE:SQ)
Historical Stock Chart
From May 2023 to May 2024