SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “appears,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about our future financial performance, our anticipated growth and growth strategies and our ability to effectively manage that growth, our ability to invest in and develop our products and services to operate with changing technology, our anticipated expansion and growth in Gross Payment Volume (GPV) and revenue, our plans for international expansion, our plans with respect to patents and other intellectual property, our expectations regarding litigation, and the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements.
The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law.
Item 1. BUSINESS
Our Business
We started Square in February 2009 to enable businesses (sellers) to accept card payments, an important capability that was previously inaccessible to many businesses. However, sellers also need innovative solutions to thrive, and we have since expanded to provide additional products and services to provide these businesses with access to the same tools as large businesses. This approach aligns with our purpose of economic empowerment, as everything we do should give sellers accessible, affordable tools to grow their businesses and participate in the economy.
Square is a cohesive commerce ecosystem that helps our sellers start, run, and grow their businesses. We combine sophisticated software with affordable hardware to enable sellers to turn mobile devices and computing devices into powerful payment and point-of-sale solutions. We have high seller acceptance rates and fast onboarding, while maintaining low risk and fraud losses as a result of our approach to risk management that emphasizes data science and machine learning. We focus on technology and design to create products and services that are cohesive, fast, self-serve, and dependable. These attributes differentiate us in a fragmented industry that forces sellers to stitch together hardware, software, and payments services from multiple vendors.
The foundation of our ecosystem is a full service, managed payments offering. Once a seller downloads the Square Point of Sale mobile app, they can quickly and easily take their first payment, because we can typically bring them onto our system in minutes. With our offering, a seller can accept payments in person via magnetic stripe (a swipe), EMV (Europay, MasterCard, and Visa) (a dip), or NFC (Near Field Communication) (a tap); or online via Square Invoices, Square Virtual Terminal, or the seller’s website. Once on our system, sellers gain access to technology and features such as reporting and analytics, next-day settlements, digital receipts, payment dispute management and chargeback protection, and Payment Card Industry (PCI) compliance. On the consumer (buyer) side, Square Cash offers individuals access to a fast, easy way to send and receive money electronically to and from individuals and businesses.
Our commerce ecosystem also includes powerful point-of-sale software and services that help sellers make informed business decisions through the use of analytics and reporting. As a result, sellers can manage orders, inventory, locations, employees, and payroll; engage and grow their sales with customers; and gain access to business loans. We monetize these features through either a per transaction fee, a subscription fee, or a service fee. Some of these advanced point-of-sale features are broadly applicable to our seller base and include Employee Management and Customer Engagement. With our Square Capital service, we facilitate the offering of loans to sellers based on their payment processing history, and the product is broadly applicable across our seller base. We have also extended our ecosystem to serve sellers with more specific needs. Our Build with Square developer platform (APIs) allows businesses with individualized needs to customize their business solutions while processing payments on Square and taking advantage of all the services in our ecosystem, including integration with third-party applications. In addition, certain verticals, such as service and retail sellers, benefit from specific features such as Invoices, Appointments, and Square Inventory. We also serve sellers through Caviar, a food ordering service that helps restaurants reach new customers and increase sales without additional overhead.
We have grown rapidly to serve millions of sellers that represent a diverse set of industries, including retail, services, and food-related businesses, and sizes, ranging from a single vendor at a farmers’ market to multi-location businesses. These sellers also span geographies including the United States, Canada, Japan, and Australia. We believe the diversity of our sellers underscores the accessibility and flexibility of our offerings. In the year ended December 31, 2016, we processed $49.7 billion of Gross Payment Volume (GPV), which was generated by 1 billion card payments from approximately 245 million payment cards. We processed $35.6 billion and $23.8 billion of GPV in 2015 and 2014, respectively.
Our ability to add new sellers efficiently, and help them grow their business after they join our platform, has led to continued and sustained growth. Our existing sellers also represent a sizable opportunity to up-sell and cross-sell products and services with little incremental sales and marketing expense. Additionally, we are increasingly serving larger sellers, which we define as those that generate more than $125,000 in annualized GPV. GPV from larger sellers represented 42% of our GPV in the fourth quarter of 2016, an increase from 39% in the fourth quarter of 2015.
Year Ended December 31,
2015 to 2016
2014 to 2015
2016
2015
2014
% Change
Gross Payment Volume (GPV) (in millions)
$
49,683
35,643
23,780
39
%
50
Total net revenue
1,708,721
1,267,118
850,192
35
49
Adjusted Revenue
686,618
452,168
276,310
52
64
Net loss attributable to common stockholders
(171,590
)
(212,017
(154,093
Adjusted EBITDA
44,887
(41,115
(67,741
Net loss per share attributable to common stockholders:
Basic
(0.50
(1.24
(1.08
Diluted
Adjusted Net Income (Loss) Per Share:
Basic
0.04
(0.39
(0.62
Our Products and Services
Managed Payments Solutions
The foundation of our ecosystem is a full service, managed payments offering. As previously mentioned, sellers can onboard to Square in minutes, and once onboarded, a seller can accept payments in person via the swipe, dip, or tap of a card; online via Square Invoices, Square Virtual Terminal, or the seller’s website; or through Square Cash, our personal finance app. By paying one transparent transaction fee, sellers receive technology and features that allow them to manage the entire payment lifecycle including reporting and analytics, next-day settlements (or instant settlement for an additional transaction fee via Instant Deposit), digital receipts, payment dispute management and chargeback protection, and PCI compliance. Transaction-based revenue as a percentage of GPV was 2.93%, 2.95%, and 2.98% in the years ended December 31, 2016, 2015, and 2014, respectively.
In-person/card present (CP) payments
For in-person payments, our affordable, custom-designed hardware can process all card payment forms, including magnetic stripe, EMV chip, and NFC technology. Sellers can accept Visa, MasterCard, American Express, or Discover for one transaction fee. Our hardware includes the following products: