Square Is Growing Faster Than It Can Reinvest in the Business
At the beginning of this year, Square (NYSE: SQ) CFO Sarah Friar told analysts they should expect relatively modest EBITDA margin expansion in the mid-single digits of percentage points over the next few years. "We think that's probably the right balance of being able to invest to grow against showing you that we're going to grow prudently and show leverage where we can," she said on the company's fourth-quarter earnings call.
Since then, it posted margin expansion of 19 percentage points and 8 percentage points in the first and second quarters, respectively. With the second-quarter report, management guided for just 5 percentage point EBITDA margin expansion. And Friar recently said the midpoint of the full-year 2017 EBITDA margin shows 7 percentage points of expansion at Deutsche Bank's 2017 Technology Conference.
It turns out the analysts who thought Square was being too conservative were right. While Friar wasn't entirely off in her early estimate, it's important to look at what's leading to Square's outperformance on the bottom line.
Source: Fool.com
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