Shares of payment processing company Square (SQ 0.51%) dropped after it reported its first-quarter earnings earlier this month, despite maintaining a torrid growth rate and raising its 2019 full-year revenue guidance.

In the company's first quarter, adjusted revenue rose to $489 million, a 59% increase year over year, and adjusted EBITDA grew to $62 million, a 72% increase. Investors seemed concerned that the company's gross payment volume (GPV) grew a relatively modest 27% to $22.6 billion.

For long-term investors, however, the quarter offered plenty to be pleased about, starting with Square's continued ability to introduce innovative solutions and services that build out it ever-growing ecosystem. The most obvious example of this innovation was the revamped Square Online Store, a whole new set of tools the company is offering merchants to sell their wares and services online.

A customer uses a smartphone to complete a transactionon at a Square Register on the counter at a coffee shop.

Square believes it can win new customers through its robust omnichannel commerce offerings. Image source: Square.

A new and improved Online Store

Last year, Square acquired Weebly, a website-building platform that enables merchants to set up websites quickly and easily. Square is now putting that acquisition to good use, integrating Weebly's platform with its own to vastly revamp its online-store builder. Its old tool allowed sellers to do little more than build pre-designed, single-page websites. Its new Online Store offers much more, including:

  • Multipage websites with customizable design options.
  • Automatic syncing of sales and inventory data across online and in-person sales.
  • Easy integration with third-party platforms, such as Facebook's Instagram galleries.
  • Search engine optimization, which helps merchants' offerings show up when people search online for things they might want to buy.
  • Options such as sending emails, digital coupons, and pop-ups to entice potential customers back when purchases are abandoned in virtual shopping carts.

Omnichannel is Square's "sweet spot"

This new emphasis on online sales places Square in a fiercely competitive field where other fast-growing companies such as Adobe's Magento, Shopify, and currently reside. The difference is Square's focus on omnichannel commerce, rather than singularly concentrating on e-commerce. In the company's conference call following the release of its earnings, CEO Jack Dorsey made sure to highlight this distinction:

We've been talking about omnichannel for quite some time. This quarter, we launched the new Square Online Store, and we made it so that it has automatic syncing of both online and in-person data. So, all of a seller's items, orders, inventory and prices are synced automatically, which is another result of our ecosystem and using our internal tools to have much more impact and to move faster.

Later, Dorsey added, "We have focused more on omnichannel rather than just pure e-commerce, because that's really where our sweet spot is with sellers." With sales and inventory syncing across channels and other distinctly omnichannel features -- such as buy online, pick-up in-store -- Square seems to be specifically targeting retailers that want to sell across multiple channels.

Square's growing customers

Square's focus on beefing up its online tool set for merchants is also a growing indication that Square is seeking out larger fish in the sea of customers. In other words, the larger the seller, the more likely it will be selling across multiple sales platforms. During the conference call, new CFO Amrita Ahuja said:

We know that 30% of our larger sellers serve their customers via more than one channel on Square. So, we're very focused on expanding our opportunities across going deeper within sellers and providing new ways that sellers can onboard.

In the past two years, Square's GPV from large sellers -- defined as merchants with greater than $500,000 in annual GPV -- has increased from 16% of total GPV to 24%. This is important because not only do larger merchants bring more sales and transactions to Square's payment-processing business, but more than 50% of Square's large-seller base subscribes to two or more of Square's products. These sellers will be much more inclined to use Square's payroll, invoice, and other features than smaller operators. As it continues to add attractive features to its ecosystem, larger sellers will naturally consider Square's platform a viable alternative to competitors.

Square's long runway of growth

Square's shares trade at a steep valuation, and the company is not even profitable on a GAAP basis. Yet its high rate of adjusted revenue growth -- and specifically the incredible growth of its subscription and services-based revenue segment -- proves the almost insatiable demand for these solutions that solve traditional pain points for small businesses. As Square grows its ecosystem and embraces omnichannel retail solutions, there seems to be little evidence that this demand will subside anytime soon. This is why Square still holds a place in my portfolio, and why investors looking for growth might want to consider it for theirs.