Square Inc. reported fourth-quarter revenue that topped analysts' estimates, suggesting the digital-payments business will continue to grow in the face of increasing competition from PayPal Holdings Inc. and Apple Inc.
Sales rose 49 percent to $374 million in the quarter, Square said in its first report as a publicly traded company. That compared with analysts' average estimate of $345 million, according to data compiled by Bloomberg.
"The reason to get excited about Square is it's growing very quickly," said Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles. "Square so far has shown very little inclination to be profitable, they've been focused on growth."
Chief Executive Officer Jack Dorsey must convince investors that Square can grow even as PayPal, Apple and others join the crowded transactions industry, and that he can juggle his other job as CEO of struggling social-media platform Twitter Inc.
Square targets small businesses with devices that plug into smartphones and tablets, allowing merchants to process credit-card payments. The company usually takes a 2.75 percent cut per transaction swipe. It also provides cash advances to merchants and tools for managing inventory and analyzing sales data.
The low-margin payments business is seen as an entry point to attract customers, who can be sold additional services that earn Square more money. The company said it lost $80.5 million, or 34 cents per share, in the fourth quarter, compared with $37.1 million, or 25 cents, a year earlier. The loss included $32.2 million dividend on preferred stock.
Square shares rose 4.8 percent in extended trading after earlier gaining 4 percent to close at $12.03. The San Francisco-based company has gained 35 percent since its initial public offering at $9 in November.
Investors want to see the company maintain strong sales growth as a sign it will find new customers in the face of competition. With transactions excluded from a deal with Starbucks Corp., Square revenue grew 72.5 percent in 2014, down from 137 percent growth during the previous year, the company said in filings released as part of the IPO.
Square serves merchants in the U.S., Canada and Japan, and on Monday introduced its business in Australia.