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Surprise! It’s 2017 and Square is thriving

Remember when Jack Dorsey’s Square was supposedly crumbling? I do.

Jack Dorsey Henry Dombey / Recode
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

It’s hard to remember now, but back in 2014, just about everyone in tech who wasn’t a Square employee or investor was convinced the company was falling apart.

There was a Wall Street Journal article that disclosed large losses at Square, a defensive, ill-conceived blog post from Square rebutting 10 myths about the company, and Dorsey’s decision in the midst of the subsequent backlash to jet to his hometown to participate in the Ferguson protests. All the while, rumors were running rampant that Square would be forced to sell.

Fast-forward to today, and surprise! Square is thriving — as an independent and public company.

After announcing strong fourth-quarter results yesterday that beat analyst expectations, Square’s stock was trading up 13 percent at around $17 a share. That’s a 52 percent increase from where the stock opened on the company’s first day of trading in November 2015.

How did we get here?

For one thing, Square’s core payment processing business is much stronger than many people predicted.

About $50 billion of card purchases went through Square’s system in 2016, and that number doesn’t include its now-ended Starbucks partnership. And as that number has grown, Square has gotten better at reducing losses from things like card fraud. Square also continues to attract larger merchants to its platform, proving that its services are valuable to more than just micro-merchants.

Square’s new, non-core businesses — things like its Square Capital lending service and Instant Deposit product — now account for 25 percent of adjusted revenue, the most-closely watched revenue metric at Square. As a whole, these businesses are important because they boast high profit margins and also help keep merchants from fleeing to other payment providers.

Speaking of profits, Square has produced positive adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) — the profitability metric many investors care most about for a fast-growing company — for three straight quarters. And the company is forecasting $100 million more in 2017.

Square is still a young company with a lot of questions.

Will its continued investment in Square Cash ever pay off in the form of a real business? Can it build a long-term profitable business?

But by now it’s clear that many smart people were wrong on Square. It’s a bona fide success story. And it’s not going anywhere.

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