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Square Tops Sales Estimates on Gain From Broader Services

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  • Adjusted revenue jumped 47 percent to $283 million in quarter
  • Profit forecast for current quarter falls short of estimates

Square Inc. reported sales that topped analysts’ estimates for a ninth consecutive quarter, bolstered by a steady increase in larger merchants using the company to process payments and manage their businesses.

Adjusted revenue rose 47 percent to $282.7 million in the fourth quarter, the San Francisco-based company said Tuesday in a statement. Analysts projected $266.6 million. Square processed $17.9 billion in gross payment volume, up 31 percent from a year before.

In more than two years as a public company, Square has moved beyond its iconic payment dongle for reading credit cards to become a one-stop business manager for small and mid-sized retailers, providing loans, accounting, inventory tracking and e-commerce operations among its services. The company’s shares have more than doubled in the past year, as investors have become more positive about its earnings potential in targeting bigger businesses. Square also has added higher-margin offerings, such as ways to monitor employee hours and provide instant deposits, that have contributed an increasing share of revenue and helped offset a slowdown in payments transaction growth.

“They’ve validated the economic model and market,” said Josh Beck, an analyst at Keybanc Capital Markets Inc. “This year, people are starting to pay more attention to the platform and all of these other services they can monetize. They’re growing more confident that those strategies will work.”

The company, however, gave a profit forecast for the current quarter that may have disappointed investors. Earnings, excluding some items, are expected to be as high as 5 cents per share, Square said. Analysts projected 8 cents. Adjusted revenue in the period will be as as much as $295 million, compared with estimates of $273.1 million. Square shares slipped 1.4 percent in extended trading after closing at $45.91.

Chief Financial Officer Sarah Friar encouraged Wall Street to focus on full-year guidance rather than quarterly forecasts that include short-term fluctuations. Annual earnings, excluding some items, will be 43 cents to 47 cents a share on adjusted revenue of as much as $1.33 billion, Square said. Analysts projected 45 cents a share on adjusted sales of $1.28 billion.

Square is focused on spending to expand financial services, gain more international customers and help merchants engage with consumers in multiple ways -- in their stores, on websites and through social media apps, Friar said.

“We also come into the year going hard on the recruiting side to build those remarkable products,” she said. “Right now Square is really resonating with candidates so it’s a great time to be in the market.”

The company’s lending business, Square Capital, has also increased rapidly. It has extended more than $1.5 billion to more than 130,000 merchants. Square has kept the default rate low by determining eligibility with factors such as processing volume, account history and payment frequency. Late last year, Square applied for an industrial loan company charter, which could save money by eliminating the need for a loan-origination partner.

Adjusted earnings before interest, tax, depreciation and amortization were $41.2 million in the fourth quarter, compared with analysts’ average estimate of $38.3 million. Revenue from subscription and services almost doubled to $79 million from a year earlier.

Chief Executive Officer Jack Dorsey, who also runs Twitter, has been trying to expand Square’s use among consumers. Earlier this year, he announced the introduction of bitcoin trading for almost all users of its cash payments app, which lets users transfer money to friends and family.

For the first time, Square disclosed that its Cash App had more than 7 million monthly active customers in December.

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