Jack Dorsey, CEO of Twitter
Photograph by John Chiala — CNBC/NBCU Photo Bank—Getty Images
By Leena Rao
August 2, 2015

“What’s really going on at Square?”

“The company seems lost.”

“Can Square live up to the hype?”

These were all comments made to me over the last year by venture capitalists and people in the technology industry about Square, the Silicon Valley payments company founded by Twitter co-founder Jack Dorsey.

The industry got part of the answer to this confusion on Friday when reports surfaced that Square had confidentially filed to make a public offering. As Bloomberg reported, Square filed to go public under the JOBS Act, which allows companies with less than $1 billion in revenue to privately file for an IPO. Sources familiar with the company’s plans say that Square expects its IPO to take place this fall but has the option to delay it.

One investment banker told Fortune: “I was shocked when I learned they filed. I thought they were struggling.”

Contrary to past reports, signs suggest that Square’s revenue will grow. According to one source close to the company, Square’s revenue is growing three to four times faster than payments giant PayPal (PYPL), which just went public after spinning off from eBay. In the second quarter of 2015, PayPal saw revenue jump 16% to $2.3 billion. If sources close to the company are correct, Square’s revenue is growing at least 50% year over year. (A spokesperson for Square declined to comment.) Jim McCarthy, executive vice president of strategic partnerships and innovation at Visa, recently told Fortune that Square is a top 10 merchant on Visa’s credit card processing system. It’s also worth noting that Visa made a strategic investment in Square in 2011.

The rise

In a recent, separate interview regarding eBay’s future without PayPal, investor Marc Andreessen told Fortune that startups are “over-glorified” in the Valley.

“We venerate the new, cute young upstart,” he said.

Square may have been a victim of that mindset. The company’s hype cycle began in 2009 when Dorsey, who had left Twitter after being pushed out of the CEO role, introduced a sleek, white credit-card reader that plugged into a mobile device to allow anyone with an iPhone or Android smartphone to accept credit card payments. Top venture capital firms on Silicon Valley’s Sand Hill Road poured money into the company, including Khosla Ventures, Sequoia Capital, and Kleiner Perkins. (Even Virgin Group founder Sir Richard Branson invested.) Flush with cash, Square was able to attract some of the Valley’s most talented operators, product managers, and engineers, including Keith Rabois, Megan Quinn, Sarah Friar, and Gokul Rajaram.

Members of the press, including this reporter, chronicled every step the company made. Square was often likened to the next Apple (and Dorsey, the next Steve Jobs). Square scored several high-profile partnerships with Fortune 500 companies, including a 2012 deal with coffee giant Starbucks (SBUX), which put that company’s CEO, Howard Schultz, on Square’s board of directors. By November 2013, the Wall Street Journal reported that Square was exploring an IPO with top-tier investment banks such as Goldman Sachs.

The fall

It didn’t take long for the early sheen of startup success to wear off.

The first blow came to Dorsey’s reputation with the late 2013 release of writer Nick Bilton’s book Hatching Twitter, which chronicled the story of Twitter and characterized Dorsey as unable to stabilize the company’s culture and technology. The next round came with news reports in 2014 that Twitter had postponed its IPO earlier in the year, was looking for a seller, and had engaged in discussions with Apple, Google, and eBay. A Journal report asserted that Square was bleeding money—roughly $100 million in 2013, a figure that was larger than the loss the company posted in 2012. Additionally, the report said that Square’s margins were shrinking. Though Square vehemently denied the acquisition talks (as did some of the acquirers) and rejected the report, all was not rosy with the company’s core products, especially those that were consumer-facing.

In 2014, Square shut down Wallet, its mobile wallet product for consumers, after it failed to gain traction with its intended audience. With Wallet’s demise went Square’s Starbucks partnership that allowed people to pay for their coffee using the app (though the company continues to process payments for Starbucks). Earlier this year Square shut down Order, an app that allowed people to get order food from restaurants. Meanwhile Square resisted making Dorsey available for interviews with the press and reduced his on-stage appearances on the tech conference circuit. Speculation abound: Was something amiss at Square?

Refocus

Earlier this year, a newish strategy began to take form at Square. In addition to collecting revenue from credit card payments, Square focused on new ways to make money by introducing new, related features that merchants would pay for: invoicing, cash advances, appointment scheduling, marketing features, and slicing and dicing business data, among others.

Today at Square, business-focused services outnumber those for consumers, among them the peer-to-peer payments app Square Cash and Caviar, a food delivery startup it acquired last year. And they’re doing well with merchants: Sources tell Fortune that Square Capital, which offers cash advances to small businesses, is exceeding expectations. Square said recently that it has loaned $100 million to more than 20,000 businesses over the past year. In April, Square Capital advanced nearly $25 million in capital.

And then there are the numbers that contradict the Journal report that margins are slim. As Fortune learned from internal documents last year, Square’s margins are a healthy 34%. On a $100 transaction, the company takes a cut of about $3, which it records as revenue and from which it earns about $1 in gross profit. Last year, the company processed about $30 billion in transactions annually, which would put its gross profit at an annual rate of about $300 million.

In other words, Square today is more of a financial services company than a consumer product company—a harbinger for strategic decisions to come.

Taking its public turn

It remains difficult to ascertain just how healthy Square is as a business without knowing its exact revenues, profits, and expenditures. That’s why the possibility of it making a public offering is so tantalizing. We’ll see those numbers when its Form S-1 is eventually released—a decision, it should be noted, that is controlled by Square. (Until 21 days before its IPO roadshow, that is, when the JOBS Act requires Square to release the document to the public.)

Dorsey appears to have resumed his appearances in front of audiences and the press, and the company has repositioned its message to emphasize its vision as a data-focused merchant services company. That presence has been bolstered by transition at Twitter; the company’s announcement that Dorsey would become interim CEO following the departure of Dick Costolo thrust Dorsey into the spotlight once again. (Twitter’s CEO search committee has ruled out the possibility that Dorsey could run both Twitter and Square permanently, and now that the latter has filed for an IPO, he’s unlikely to vacate that role.)

On Tuesday, a confident and refreshingly candid Dorsey led his first Twitter earnings call, a practice run of sorts for the man that may one day lead the same call at a publicly traded Square. Dorsey’s payments company still has a long road ahead, especially when proving to Wall Street that it has a sustainable business. But it appears that Square’s early difficulties in the limelight have fortified its resolve and clarified its purpose. Square in 2015 looks a lot different than Square in 2010. And that’s a good thing.

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