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Three Takeaways From Square’s Latest Earnings

August 3, 2016, 10:26 PM UTC
Twitter Co-Founder Jack Dorsey
Jack Dorsey, co-founder of Twitter Inc. and chief executive officer of Square Inc., speaks during a television interview in New York, U.S., on Monday, Oct. 25, 2010. Square's mobile-payment technology allows smartphone users to make credit card payments and the availability of funding for new ventures. Photographer: Jin Lee/Bloomberg via Getty Images
Photograph by Jin Lee — Bloomberg via Getty Images

Payments company Square beat analysts expectations in its second quarter earnings, sending its stock up more than 10% in after hours trading. The company blew past analyst revenue expectations of $406 million, posting $439 million in revenue, up 41% from the same quarter in the previous year.

Here are three things to take away from Square’s earnings:

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1. Losses are narrowing: Although Square (SQ) posted a net loss of $27 million, which is significantly less then the loss of $97 million in the first quarter of 2016. Square earnings before interest, taxes, and other expenses included was $13 million, which exceeded the high end of the company’s publicly projected guidance.

2. Payment volume is growing: The amount of payments being made through Square’s credit card readers was up 42% to $12.5 billion in the quarter. Part of that is attributed to an increase in volume of larger sellers using the service.

Square said that payments volume from these sellers — which are defined as merchants — generate more than $125,000 in yearly payments volume and grew 61% year over year, representing 42% of total volume in the second quarter of 2016. That’s up from 37% of volume in the second quarter of 2015.

3. Online lending is still massive and growing: Square’s lending arm, Square Capital continues to be one of the bright stars in the company’s suite of services outside of payments. In the second quarter, Square extended nearly 34,000 business loans totaling $189 million, an increase of 123% year over year and 23% from the previous quarter in 2016.

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Square originally launched the lending arm in 2014 to provide cash advances to merchants using Square’s point of sale service. Square recently announced that it would be expanding into traditional online loans, with fees between 10% to 16% of the amount borrowed.

Last quarter, Square said it was experiencing “challenging credit market conditions” and also reported delays in signing new investors to back its fledgling lending business. Square sells the majority of its loans to third parties for an upfront fee and a small ongoing servicing fee. This quarter, Square said that it added five new investors to invest lending capital.

Revenue from Square Capital, and the company’s other software services which include invoicing and analytics, was up 130% to $30 million from the same quarter in 2015 and up 25% from the previous quarter in 2016.