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Square's (SQ) - Get Block Inc Class A Reportsecond-quarter report makes it clear that the company remains quite dominant in its core market, and that it's still very much a high-growth company as it wins over larger merchants and cross-sells existing clients on value-added software and services. Just how profitable this growing business will be in the long run is still a question mark.

Square, whose mobile card readers are used by millions of small businesses, saw its net revenue rise 41% annually to $439 million, topping a consensus estimate of $406 million. Adjusted EPS of an 8-cent loss was better than last year's 20-cent loss, and above an 11-cent-loss consensus estimate.

In addition, full-year guidance for adjusted revenue, which backs out transaction costs and revenue from a deal with Starbucks (SBUX) - Get Starbucks Corporation Report that will soon expire, was hiked to $655 million to $670 million from $615 million to $635 million. Adjusted Ebitda guidance was hiked to $18 million to $24 million from $8 million to $14 million.

Revenue growth will slip in the coming quarters as the Starbucks deal expires. However, this has been telegraphed for some time. Starbucks transaction revenue fell 2% in the second quarter to $32.9 million.

Transaction revenue from everyone else grew 40%, to $364.9 million, thanks to a 42% increase in total gross payment volume (GPV) to $12.5 billion. GPV growth slowed a bit from the first quarter's 45%, but still indicates Square, aided by the convenience and ease of use of its platform, is seeing healthy customer growth in spite of competition from PayPal (PYPL) - Get PayPal Holdings, Inc. Report, Intuit (INTU) - Get Intuit Inc. Report and many others.

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Greater traction with larger sellers is also helping: Sellers with more than $125,000 in annualized GPV accounted for 42% of volume, up from 37% a year ago.

And Square's software and data product revenue -- closely watched because of its growth potential and because it carries much higher margins than transaction revenue -- jumped 130%, to $30 million (still only 7% of revenue).

Strong momentum for the Square Capital lending service, which faced headwinds in the first quarter, helped out: The value of loans extended via Square Capital rose 123%, to $189 million. Square's Instant Deposit service and Caviar food-delivery service also played roles.

On the other hand, transaction costs and heavy spending are keeping Square in the red. Excluding low-margin Starbucks revenue, Square's transaction gross margin slipped to 35.6% from 36.2% a year earlier.

And operating expenses rose 49%, to $176 million -- R&D, sales and marketing and G&A spend all saw steep increases, and transaction, loan and advance losses more than doubled to $17.5 million. Square's official net loss of $27.3 million was just slightly improved from the prior year's $29.6 million.

Square has arguably put to rest concerns about the viability of its business, as well as about the threats posed by rivals. But the company remains very tough to value. Justifying a current $3.7 billion valuation will require Square to both keep up its current software and data product momentum and reign in its spending growth.