Square Inc.'s (NYSE:SQ) third-quarter earnings report earlier this month came on the heels of a pretty busy quarter. In the previous three months alone, Square made high-profile partnerships with both Eventbrite and SAP SE (NYSE:SAP) that essentially embedded Square's payment processing services into the two companies' business platforms, applied for a bank charter in Utah, and released Square Register, the company's first high-end checkout terminal.

With this barrage of news as the backdrop, Square once again delivered an excellent quarter. Adjusted revenues increased to $257 million, a 45% increase year over year, and adjusted EBITDA increased to $34 million, an amazing 195% year over year increase. These powerful results were driven by growth in the company's gross payment volume, the total dollar amount processed by Square, which grew to $17.4 billion, a 31% increase over 2016's third quarter. The company's take rate, its transaction-based revenue as a percentage of gross payment volume, remained steady at 2.93%.

With all the news and great numbers, I wonder if Square investors had a chance to digest what I thought was the most bullish takeaway from the quarter: how Square's payment processing services are gaining real traction with omnichannel sellers.

Customer using smartphone to complete a purchase at a cafe on a Square Register.

Square has evolved into a company offering a host of innovative payment solutions. Image source: Square Inc.

Square-ly aligned with the times

When CEO Jack Dorsey founded Square in 2009, the original purpose of the company was to enable any vendor or merchant with a mobile device to accept card payments "anywhere, anytime". In the short time since Square was founded, retail has changed dramatically. E-commerce's growth, already a reality in 2009, has exploded in the eight years since, and is now joined by a similar sharp rise in mobile commerce.

But it's not enough to simply divide all commerce between online and offline. No, the modern day retail landscape is much more complicated than that.

For instance, consider a simple transaction for a cup of coffee. If a consumer buys it on a mobile app and picks it up fifteen minutes later in the coffee house, is it a mobile or point-of-sale transaction? Any payment processing company that wants to cater to growing businesses has to have solutions for these modern-day retail conundrums. 

Square is making sure it evolves with the times. In the quarter's conference call transcript, provided by S&P Global Market Intelligence, Dorsey said, "We've been focusing a lot of the efforts on omnichannel, making sure that we can help sellers who want to sell online and off-line." One of the areas Dorsey highlighted was the company's new partnership with Eventbrite, where, Dorsey pointed out, Square would have "to process payments for its online, mobile and in-person transactions." Eventually, CFO Sarah Friar said, the idea would be to launch a platform that any such marketplace "could come on to." Square's Caviar, a platform that gives restaurants the capability to let their customers order ahead on a mobile app, was one of the company's first steps in this direction.

A strategy Square-ly aimed at omnichannel solutions

Square has grown substantially since starting out as a small, mobile point-of-sale solution for small merchants, but it knows this is no time to rest on its laurels. Square's management believes the company is uniquely positioned to be the first elegant and seamless omnichannel experience for businesses. When asked about Square's competitive advantage in omnichannel commerce, Dorsey responded:

"We believe we're extremely well positioned to win here. And we've been listening to our sellers for quite some time. We've had a lot of sellers who have come to us, starting off-line and wanting to sell online, and that's who we address first, and we've also seen sellers who are online who want to experiment with pop-ups or physical locations, and again, one dashboard and one set of tools to represent the entire business ... [T]he fact that you can come into Square through one channel such as Register or Online or Caviar and you get a whole suite of tools that serve critical needs for your business is really powerful, and we haven't seen that matched in many others. And when it is matched, it's not matched in a seamless way that we have been offering around."

There is evidence to believe Square management's claims that it is positioned well for this evolution in retail. Square's subscription and services-based revenue was $65 million in the third quarter, an 84% increase year over year. One of the primary drivers of this segment's growth was Caviar, the aforementioned platform that allows restaurant customers to order food for pick-up or delivery via a mobile app. Square's transaction-based profit, as a percentage of gross payment volume, was 1.05%, up from 1.01% in 2016's third quarter. This increase, according to Friar, was primarily driven by things like Square's Virtual Terminal and online payments, both of which have higher rates than point-of-sale transactions.

Success Squared

Today's retail landscape is tough, fraught with difficult challenges and changing consumer shopping behaviors. Retailers need to be able to keep pace with consumer habits or risk losing sales. This makes Square a valuable partner if it can continue to deliver on its promise of a holistic and seamless dashboard that helps simplify running a business. Thus far, there is ample evidence that plenty of businesses are finding value in Square's products and services.

Due to these innovative retail solutions, Square finds its business performing better by nearly every metric, two of which should be most important to investors: It is processing a growing amount of payment volume and taking a greater amount of profit from this volume. If these trends continue, there is no reason why the company's stock price cannot continue to rise, even though it has already risen 189% year-to-date.