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earnings-outlook:-square-buys-more-bitcoin-as-cash-app-users-boost-revenue
earnings-outlook:-square-buys-more-bitcoin-as-cash-app-users-boost-revenue

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Earnings Outlook: Square buys more bitcoin as Cash App users boost revenue

Earnings Outlook


More users are coming to Square’s Cash App to buy and sell bitcoin, and the company is doing more bitcoin buying of its own

Square posted fourth-quarter revenue of $3.16 billion.


Square

This story has been updated to correct the number of Cash App users who bought or sold bitcoin during 2020.

Square Inc. doubled down on bitcoin with a $170 million investment in the cryptocurrency, as surging interest in trading among Cash App customers helped revenue more than double in the fourth quarter.

The company announced its newest bitcoin investment Tuesday in conjunction with its fourth-quarter earnings report, which showed growing revenues and a growing base of Cash App users amid increased interest in both bitcoin and equities trading.

Square shares
SQ,
-4.29%

were off 3.7% in after-hours trading Tuesday.

Square had 36 million overall monthly Cash App users in December. The company disclosed that more than a million Cash App customers bought bitcoin for the first time in January alone, while more than 3 million bought or sold bitcoin on the app for the whole of 2020.

The company posted fourth-quarter revenue of $3.16 billion in its Tuesday-afternoon report, up from $1.31 billion a year earlier and ahead of the $3.10 billion that analysts surveyed by FactSet had been expecting, though Wedbush analyst Moshe Katri said in an email to MarketWatch that “by typical standards, [the] net sales beat was relatively small.” More than half of the company’s quarterly revenue total came from bitcoin.

Square’s revenue for the quarter included $987 million from its seller business and $2.17 billion from the Cash App, which is where users can send peer-to-peer payments as well as trade equities and bitcoin. Bitcoin revenue came out to $1.76 billion while Cash App revenue excluding bitcoin equated to $416 million in the quarter. Because bitcoin trading capabilities still carry a slim margin for Square, the Cash App’s overall gross profit rose by a smaller percentage (162%) compared with Cash App revenue (502%).

“Bitcoin revenue and gross profit benefited from an increase in bitcoin actives and growth in customer demand, as well as a significant year-over-year increase in the market price of bitcoin,” the company said in its shareholder letter.

Square itself bought about 3,318 bitcoins at an aggregate price of roughly $170 million, building on a previous purchase of about $50 million worth of bitcoin and making it so bitcoin represents approximately 5% of Square’s total cash, cash equivalents and marketable securities.

Bitcoin “has the potential to be the native currency of the internet” and Square wants to “align our incentives” with cryptocurrency, Chief Financial Officer Amrita Ahuja said on a call with reporters following the report.

One high point of the report for Rosenblatt Securities analyst Sean Horgan was Square’s disclosure that its overall customer acquisition costs for the Cash App were less than $5 a user during 2020, which he said highlighted the company’s “efficient marketing and viral network effects.”

Square currently offers Cash App users the ability to buy and sell bitcoin as well as a select group of equities, which Ahuja said was aligned with the company’s mission to educate investors about trading and make investing more accessible and relatable. “As we think about other cryptocurrencies” or other stock investing on the platform, Square “will be guided first and foremost by stability and security for our platform” as well as customer interest, she said.

Don’t miss: Mastercard to let merchants accept some cryptocurrencies directly later this year

The payments company generated fourth-quarter net income of $294 million, or 59 cents a share, whereas Square posted net income of $391 million, or 83 cents a share, a year prior. After adjusting for stock-based compensation and other expenses, Square earned 32 cents a share, up from 23 cents a share a year earlier and above the 24-cent FactSet consensus.

Square’s gross payment volume, or the value of payments flowing through the company’s platform, rose to $32 billion from $28.6 billion a year earlier.

The company offered some commentary on its January performance but declined to give a formal financial outlook. Square’s seller gross profit was up 15% from a year prior in January, the company said in its shareholder letter, representing “a modest improvement compared to the fourth quarter.” The company also saw its “highest monthly totals of new transacting active customers for its bitcoin, stock brokerage, and Cash Card products” during January.

Shares of Square have gained 23% over the past three months as the S&P 500
SPX,
+0.13%

has risen 8%.

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