Square shifted its focus in the last couple of years to get small businesses (but also bigger merchants) to use the company’s add-on services for managing inventory, securing cash advances and analyzing sales data. For instance, in its first earnings report as a public company, the company said that the shares climbed after fourth-quarter sales rose 49 % to USD 374 million.
Strategically, larger customers will help Square become profitable this year and thus, it will help Jack Dorsey (the CEO) to persuade investors that Square has the potential to grow as much as PayPal, Apple and others joining the crowded transactions industry while juggling his other job as CEO of Twitter. Square shares rose in extended trading after earlier gaining 4.8 % to close at USD 12.03. The stock has gained 34 % since its initial public offering at USD 9 in November.
The company said revenue increased across all categories: payment transactions, software and data products. However, Square said it lost USD 80.5 million, or 34 cents a share, in the fourth quarter, compared with USD 37.1 million, or 25 cents, a year earlier. The loss included a USD 32.2 million dividends on preferred stock.
In its busiest quarter, Square processed USD 10.2 billion in payments, up 47 % from a year earlier, on behalf of more than 2 million merchants. More importantly, larger merchants - those processing at least USD 125,000 annually - represented 39 % of all transactions in the quarter, an increase from 33 % of volume a year earlier.
Square’s mobile credit-card readers consist of dongles that plug into smartphones and tablets, enabling credit-card payments on the go. For this service, the company usually takes a 2.75 % cut per transaction. The low-margin payments business is seen as an entry point to attract customers, who can be sold additional services. Square Capital, which provides simple access to funds for growing a business, issued more than USD 400 million in cash advances to merchants in 2015.
More merchants shift from accepting payments by reading magnetic strips on credit cards to reading chips embedded in cards and using near-field technology to accept smartphone payments. This places Square in a good position to attract more business. Square said it received 350,000 orders for its latest USD 50 reader that can scan chips and accept payments from smartphones. That shift exposes more merchants to Square’s other products, Dorsey said.
In recent news, Visa has disclosed that it holds 10% percent of Class A shares in Square.
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