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Square’s Software Business Is an Emerging Star

Square Inc. Begins Trading On The NYSE Following IPOSquare Inc. Begins Trading On The NYSE Following IPO
Jack Dorsey, CEO of Square and TwitterPhotograph by Yana Paskova — Bloomberg via Getty Images

For the past year, payments company Square has focused on expanding beyond selling credit card readers for merchants to invoicing, cash advances, and appointment scheduling. That bet appears to be paying off.

Square’s first earnings Wednesday after a highly anticipated initial public offering in November showed big revenue gains from its new push into software and services. Fourth quarter sales in the segment rose nearly four-fold to $22 million from the same period a year earlier.

That growth blew past RBC Capital Markets’ expectations for 14% sequential quarterly growth in the segment. In fact, it rose at a far faster clip of 52%.

That means software services grew faster that the payments volume flowing through Square’s credit card readers. Transaction revenue, or money made from the fees merchants pay Square for each time a credit card is swiped, gained 6% sequentially to $298 million in the fourth quarter.

CFO Sarah Friar said Wednesday that Square Capital, the company’s merchant lending service that provides cash advances to retailers, accounted for a big part of the growth. Square said that it made $400 million in cash advances for all of 2015, of which $150 million came in the fourth quarter alone.

“Software and data sales went really well,” Friar said on a call with reporters.

Overall, she added that Capital has made 70,000 advances. To emphasize customer satisfaction, she said that 90% of businesses take a second advance.

There’s even more opportunity by issuing advances to its 2 million active merchant customers, Friar explained. Invoicing, employee management and appointment software is also seeing significant adoption.

In an interview with Fortune, Square CEO Jack Dorsey echoed Friar’s enthusiasm for Capital: “The speed and simplicity of Square Capital has been phenomenal,” he said. He added that Square would also try to improve the service. “We are always looking for vehicles to make the experience better, including how to advance more, and how to make it a more repeatable business.”

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Of course, Friar reiterated that Square’s payments volume and revenue is still strong. Payment volume in the fourth quarter was $10.2 billion, up 47% from the same period in 2014.

Still, the growth in businesses outside Square’s core payments is a good sign, at least from Wall Street’s perspective. The company has been reeling after its IPO amid questions about a falling stock price, slowing growth, and the focus of Dorsey, who also serves as Twitter’s CEO.

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 $12.01 in end of day trading on Wednesday.

On Wednesday, after the earnings report, the company’s shares rose 1% in after hours trading to $12.12.