Dorsey's Square posts bigger-than-expected loss as costs surge

By Sudarshan Varadhan (Reuters) - Square Inc, the mobile payments company run by Twitter Inc Chief Executive Jack Dorsey, reported a bigger-than-expected quarterly loss on Thursday as costs surged, sending its shares sharply lower in after-hours trading. Slowing growth at formerly fast-growing Square Capital, which lends to small merchants, also aroused concerns. The company said Square Capital lent $153 million in the first quarter, up just 4 percent from the preceding quarter, largely due to "more challenging credit market conditions." The business acts as a middleman to offer funds to customers who can't otherwise borrow easily. Most funds are arranged by Square through third parties, who commit to buy the future receivables. "Lenders are no longer wanting to finance alternative lending," said Gil Luria, an analyst at Wedbush Securities. Square loses $2 for every $1 of hardware sales, Luria said. "The growth is coming from the wrong places." Square, which went public in November, facilitates payments between businesses and customers with a credit card reader that turns any mobile phone into a payment terminal. The company also makes point-of-sale registers and chip-enabled card readers. Dorsey co-founded both Square and Twitter, but investors have been showing greater confidence in his ability to build Square into a strong business than in his chances of turning around Twitter. Square's shares have risen nearly 50 percent since the company went public on Nov. 19, while Twitter has lost nearly half of its value in the same period as the Microblogging company struggles to attract users and advertisers. Dorsey splits his time between the two companies, which are both based in the same area of San Francisco. BRIGHT SPOTS Square's shares were down 12.3 percent at $11.44 in after-hours trading despite several bright spots in the results. The company's net revenue jumped 51.4 percent and gross payment volume - the total dollar amount of all card payments processed by sellers - jumped 45 percent to $10.3 billion. Square also raised its annual adjusted revenue projection to $615 million-$635 million from $600 million-$620 million. But its net loss attributable to common stockholders widened to $96.8 million from $48 million in the same period a year ago as operating expenses jumped 72 percent to $207 million. Square spent more on marketing, developing its products and on staff during the quarter, Dorsey said in a letter to shareholders. (http://bit.ly/1Wb29rm) Excluding a litigation charge and other items, Square lost 14 cents per share, compared with the average analysts' estimate of 9 cents, according to Thomson Reuters I/B/E/S. Net revenue rose to $379.3 million from $250.6 million a year earlier and $374.4 million in the fourth quarter of 2015. Analysts on average had expected $343.6 million. (Reporting by Sudarshan Varadhan and Sai Sachin R in Bengaluru; Editing by Ted Kerr)