One of this year's biggest surprises was Square (NYSE:SQ), soaring 154% in 2017. The mobile-payments provider had a quiet run since going public at $9 in late 2015 until this past year's blazing burst. Square stock rose a mere 4% in 2016. However, now that Square has emerged as a market darling, the attention turns to lofty expectations for the year ahead. 

Square's ascent has been the handiwork of healthy merchant adoption of its platform, a steady string of blowout quarters, and the good fortune of being seen as a bitcoin play. There will be a lot of hype to live up to in 2018, but if Square proves to be a pleasant market surprise, it wouldn't be the first time.

Square tablet with a chip card reader processing an order.

Image source: Square.  

Cooling down 

Square isn't on fire as it heads into the new year. The shares have retreated 30% since peaking in late November. We can probably blame the December sell-off on bitcoin fatigue. Square stock soared in November after the company started allowing some of its Square Cash app users the ability to buy and sell bitcoins. With cryptocurrencies gaining steam and not too many publicly traded companies stepping up as legitimate marketplaces, Square took off. The rally wasn't going to be a sustainable.

Square had already more than doubled before it became a bitcoin play, and that's important in assessing if 2017's monster run can continue in 2018 outside the crypto craze. The platform is as popular as ever. Merchants completed nearly $17.4 billion in transactions through Square in its latest quarter, 31% more than a year earlier. Square got its start reaching out to small merchants and entrepreneurs, but these days its biggest gains in gross payment volume is coming from mid-market businesses. 

Revenue is growing faster than its payment volume, fueled by an 84% surge in subscription and services-based revenue. Adjusted revenue rose 45% in the third quarter, and Square bumped its top-line guidance to 40% at the midpoint for all of 2017.

The real explosion at Square has come on the bottom line. Profits continue to grow faster than revenue, and a big reason for its blowout 2017 is that it has blown past Wall Street's profit target with ease in each of the past four quarters. 

Metric EPS (Estimated) EPS (Actual) Suprise
Q4 2016 ($0.09) ($0.04) 56%
Q1 2017 ($0.07) $0.05 171%
Q2 2017 ($0.05) $0.07 240%
Q3 2017 $0.05 $0.07 40%

Data source: Yahoo! Finance.

The bottom-line beats have become the norm, and that's exciting as we head into 2018. Analysts are targeting 73% in earnings growth for the year ahead, but the trend suggests that Square will grow its profitability even stronger than that. Given the stock's heady valuation at this point, keeping the big beats coming will probably have to continue if Square is going to deliver another year of stellar returns. 

Square surprised the market by turning a profit sooner than expected. It will need new surprises and make sure its platform popularity keeps growing at a brisk pace if it wants any shot at doubling again in 2018.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of Square. The Motley Fool has a disclosure policy.