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Why Shares of Square Jumped in After-Hours Trading on August 4

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Square managed to narrow its losses

Shares of payment technology company Square (SQ) jumped in after-hours trading on August 4 as the company reported better-than-expected 2Q16 results. 

Square’s 2Q16 net loss of $27 million, or $0.08 per share, compared favorably to the net loss of $30 million, or $0.20 per share, reported in 2Q15. Analysts expected the company to post a loss of $0.11 per share in 2Q16.

Founded in 2009 by Twitter’s (TWTR) co-founder, Jack Dorsey, and Jim McKelvey, Square is one of the leading players in the mobile card reader market.

The company generates the majority of its revenue from payments and point-of-sale (or POS) services. The company further expanded into merchant lending and the food delivery business.

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Top line surpassed analysts’ estimates

The company’s net revenue of $439 million jumped about 41% YoY (year-over-year) and easily surpassed the analysts’ estimates of $406 million, thanks to its increased transaction revenue.

Square’s adjusted revenue, which excludes revenue from transactions with Starbucks (SBUX) and other partners, jumped by 54% YoY to reach $171 million. The company stated that it may extend the agreement with Starbucks, which was set to expire in 3Q16. Starbucks accounted for transaction revenue of $33 million and transaction profit of $4 million in 2Q16.

In addition to transaction revenue, the company’s software and data product revenue came in at $30 million, up by ~130% YoY, reflecting strong  performance of its Square Capital, Caviar, and Instant Deposit businesses. Meanwhile, hardware sales spiked 209% to $11 million, driven by the strong adoption rate of the company’s new reader.

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