Square Inc. Stock Jumped Thursday -- Here's Why

By Markets Fool.com

What: Following the company's second-quarter earnings release after the market close Wednesday, shares of mobile payments company Square (NYSE: SQ) leaped as much as 17.6% on Thursday, before paring back its gains to around 10.5% as of 1:50 p.m.

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The jump in the stock price was likely driven by Square's better-than-expected second-quarter results.

Image source: Square.

So what: Square reported revenue and adjusted earnings per share of $439 million and a loss of $0.08, respectively. This compares to revenue of $310 million and an adjusted loss per share of $0.20 in the year-ago period. On average, analysts were expecting the company to report revenue of $406 million and an adjusted loss per share of $0.11.

With Square's 41% year-over-year increase in revenue driving the company's adjusted EBITDA margin to 7% -- up about 7 points year over year and 14 points sequentially -- investors were likely happy to see proof of operating leverage as sales increase.

In a press release, management said it was "pleased with our second quarter results, which highlight strong growth at scale and a significant profitability milestone."

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Now what: Going forward, the company expects better performance than it had originally expected for the year. It wrote:

In light of our strong execution in the second quarter, we are raising our full year 2016 guidance for both Adjusted Revenue and Adjusted EBITDA. We expect Adjusted Revenue to be in the range of $655 million to $670 million, up 6% at the midpoint from our previously guided range of $615 million to $635 million. We expect Adjusted EBITDA to be in the range of $18 million to $24 million, up from our previously guided range of $8 million to $14 million. At the midpoint, this is a 12 point year-over-year improvement in 2016 Adjusted EBITDA margin.

Over the next year, investors should watch to see if Square continues to demonstrate steps toward regular profitability as sales increase.

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