Dive Brief:

• Square surprised Wall Street with a narrower-than-expected second quarter loss of 8 cents per share on revenue of $439 million, up 41% year over year. Its Q2 net loss was $27 million, an improvement of over $2 million year over year, the payments tech company said. Analysts expected a loss of 11 cents per share on revenue of $406 million, according to a Thomson Reuters consensus estimate. 

• Square's gross payment volume rose 42% year over year to $12.5 billion, thanks mostly to an increase in the number of new sellers using its payment processing services, in addition to stronger retention of existing sellers and larger sellers, the company said.

• The Square Capital business financing unit extended $189 million in the second quarter, up 123% year-over-year and 23% sequentially. Square executives said that companies are increasingly relying on the loan program to expand their businesses.

Dive Insight:

In a conference call with analysts Wednesday, Square executives said the company is looking to expand beyond payments and finances to provide other services like employee management. CEO Jack Dorsey told investors that the company is “continuing to see strong momentum as we move up market.” 

“[W]e’re finally at a place where our tools scale to any size of seller,” Dorsey said. "There's more questions as you get larger, so we've been applying a lot of machine learning and data science. We're finding that larger sellers come to us because of our brand. They see us around their neighborhood."

And many existing customers have also grown to be larger players that need additional services, or incorporate Square into their regular operations after experiencing it in a pop-up or temporary situation, CFO Sarah Friar said on the call.

“Now that the product has become much more sophisticated… they are able to use it for their entire business, so no longer just their mobile installation but instead they are coming back to their restaurants and they can use Square everywhere throughout their business,” Friar said.

Square's Q2 letter to shareholders also spotlighted a series of new products introduced during the period, like Scheduled Invoices, Recurring Invoices and Card on File, which enables sellers to save shopper credit card information for future billing. "Recurring Invoices and Card on File unlock a larger market opportunity for us, particularly in the services, health and beauty, and home repair categories," Square said.

Sales from Square's partnership with coffeehouse chain Starbucks generated $33 million in Q2, but that number is expected to decline sharply as Starbucks transitions to a new payments processor. The arrangment could extend longer than expected, however: In its shareholder letter, Square notes “We are currently negotiating an amendment that may extend the agreement beyond the third quarter to allow Starbucks additional time to complete its transition, which has been taking longer than anticipated.”