Remember Amazon went public in '97 and took another 4-5 years to turn a small profit. To answer your question, smart investors are more concerned with the long term strategy than whether the company is turning a profit in the present moment. It is far from uncommon to raise a bunch of capital from the public market to invest in growth.

This is not a comment on Square's prospects, but their business model is clearly one that is betting on getting to very big scale before turning a profit.