Square Promises Growth as Stock Soars

Shares of Square  (SQ)   moved full steam ahead after reporting better-than-expected quarterly earnings, showing growth momentum for the newly public company. 

The payment company's stock climbed almost 12.7% to $16.95 on Thursday, adding to its year-to-date gains of 24.4% and surpassing its initial public offering price of $9.

Square CEO Jack Dorsey said that the company is focused on three areas—integration of services, automation, and harnessing technology to improve its platform—to continue growth in the business. 

"Fast product development benefits all aspects of our business as a stronger platform will make us even faster," Dorsey said on the fourth-quarter earnings call. "By focusing and investing more in integration, automation and platform, we can push Square, our sellers and the economy forward."

Square touted that it created Virtual Terminal, which allows for browser-based payments, in just two months and that the new product brought in $40 million in January. 

The San Francisco-based finance business reported a loss of 4 cents a share for the three months through December, smaller than the 9 cent loss estimated by analysts in a FactSet survey. Adjusted revenue was $192 million, a 43% jump from prior year, surpassing estimates of $188 million. 

The company's gross payment volume climbed 34% to $13.7 billion during the fourth quarter, for a total of $50 billion during 2016, up 39% from the prior year. The company provides credit card payment services though its Square app, card reader, and register using a mobile phone or tablet. 

"We delivered value to our customers in a way that meaningful grew Square's business to scale, increasing revenue and improving margins," Dorsey said on an earnings call. 

Josh Beck, Pacific Crest analyst who has an overweight rating on Square, sees growth in new areas outside of payment processing as a positive.

"Adjacent products like invoices contributed approximately 5% of payment volume while loan growth and food delivery also topped our expectations, offering early proof of the platform potential," Beck wrote in a note to clients. "Square has a rich ecosystem of transaction, SKU-level, customer and inventory data that could enable it to extend beyond payments and play a larger role in commerce." 

While there were concerns over whether Dorsey could handle his dual roles as CEO of Twitter  (TWTR)  and Square, the company continued to push out new products. Square became a public company in November 2015 and has been in operation for the last eight years.

In February, Square released its new "industry-specific" point-of-sale product called Square for Retail. 

"In addition to integrating with our payments and our hardware, Square for Retail integrates with our customer directly to give sellers advance client-telling capabilities to build customer profiles and provide purchasing history directly from the point-of-sale," Dorsey highlighted. "We believe integration is why so many sellers choose Square and we will double down here."

Square Capital provides loans to businesses and competes with online lenders like Lending Club (LC)  and OnDeck (ONDK) . During the fourth quarter Square Capital had 40,000 business loans for a total of $248 million, an increase of 68% year-over-year. 

"Our in-depth work on lending, delivery and payments leads us to believe that Square is set up for a consistent series of positive fundamental surprises over the next year," Pacific Crest analysts wrote in a note.

Credit Suisse analysts have an outperform rating on the stock with a price target of $17, saying that better cost control and revenue were some of the key factors that lead to the strong quarter. 

"Management expects general and administrative [expenses] to be the biggest source of leverage, and continues to invest in product development and sales and marketing," Paul Condra, Credit Suisse analyst, wrote in a note to clients. 

Other products include Square's food delivery service Caviar, and Instant Deposit that allows quicker access to money by instantly depositing $2,500 per transaction. 

"Many of our products are still quite young and people don't know about them yet," Sarah Friar, Square's CFO, said on an earnings call. "But we absolutely know that sellers want faster access to funds, and then when they get faster access to funds they're able to use that for growth."

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