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Square Isn’t Just for Start-Ups

Neha Gupta - Author
By

Aug. 18 2020, Updated 4:45 a.m. ET

Larger merchants contributed 50% of volume

Square (SQ) started out helping small traders accept card payments. But continued investments in new products and services have helped the company broaden its reach and enlarge its addressable market at the same time.

While small traders continue to benefit from Square products, the company’s penetration of larger merchants has also continued to grow, hitting a milestone in the second quarter.

Square said merchants making more than $125,000 in gross sales annually accounted for 50% of its gross payment volume in the second quarter. That was up from 47% in the first quarter and up from 46% a year ago. Square’s win of larger merchants has been supported by its strategy of creating industry-specific solutions.

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Square’s expenses rose 45%

But Square’s pursuit of larger customers appears to be coming at a cost. The company’s operating expenses rose 45% YoY (year-over-year) to $318 million in the second quarter, driven by sharp increases in product development and marketing costs. Product development costs were $115 million in the second quarter, up 47% from a year ago. Marketing costs increased 65% from a year ago to $98 million.

Expenses up at PayPal as well

PayPal’s (PYPL) operating expenses increased 22.2% YoY, and Amazon’s (AMZN) operating expenses rose 33.8% YoY in the second quarter. Google parent Alphabet (GOOGL) saw its second-quarter operating expenses rise 36.5% YoY, while Facebook’s (FB) expenses rose 50% YoY in the second quarter.

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