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What To Expect From Square’s Earnings

Square will release its first earnings Wednesday afternoon after its highly anticipated initial public offering in November. Investors will be looking closely at the payment company’s results, which follow several months of questions about the startup over a falling stock price, slowing growth, and a CEO who is also Twitter’s leader.

Shortly after the IPO, Square’s shares took a big hit and fell below its original IPO price of $9 per share. But the stock has rallied in the past few weeks by climbing back up to $11.43.

Steve Weinstein, an analyst with ITG Investment Research, expects solid results from the company, which is led by Twitter CEO and founder Jack Dorsey. Analysts expect a loss of 10 cents a share and revenue of $344.74 million.

Square premiered in 2009 when Dorsey introduced a sleek, white credit-card reader that lets anyone with an iPhone or Android smartphone accept credit card payments. The company, which competes with established point of sale sellers like Oracle’s Micros devices, has since expanded its line of readers to iPads, and has also been steadily adding business services like payroll software and data crunching.

Square’s stock price fell as much as 30% in January amid investor concerns about the company’s lack of profits—it has racked up huge losses for much of its existence. Investor pessimism about tech stocks, in general, also likely played a role.

Despite the questions, Square has continued to push ahead. A few weeks ago, Square debuted a new reader that lets merchants accept payments through new smartphone based services like Apple Pay, Android Pay, and Samsung Pay. They let users pay by simply waving their smartphones near the reader, eliminating the need for cash or pulling credit cards from wallets. RBC Capital Markets forecasts that Square will increase its hardware sales 140% from the third quarter of 2015 because of the availability of its new reader.

In terms of transaction revenue that Square makes from merchants processing payments through its point of sale registers and credit card readers, Weinstein expects a 45% rise to $300 million from the previous year. Analysts are focused on transaction revenue because it accounts for most of Square’s overall sales.

“Growth in transaction revenue will be very important for evaluating Square’s overall growth,” he said.

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Analysts will also likely want to see growth in the number of customers using Square’s payments services, which will show “broader adoption of Square’s core product,” he added. Square has said it has 2 million active merchants. RBC is projecting that the amount of payments flowing through Square will increase 33% from the previous year to $9.2 billion.

Many investors will also be looking for an update on numbers from Square Capital, the company’s merchant lending service, which issues cash advances to retailers using its point of sale registers. As of last fall, Square Capital was lending around $1 million daily to small businesses that use its payments services. RBC expects revenue from software and services will be up 14% from the third quarter of 2015, primarily driven by growth in Square Capital.

“Square is very early into a very large opportunity, and it’s going to come down to their execution on whether they can be successful,” Weinstein said.