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Square’s Skyrocketing Bitcoin Sales Prove Jack Dorsey Should Go All In

May 2, 2019

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By CCN: Square might have had a mixed first quarter performance, but the Cash App, which is where investors buy and sell bitcoin, was a bright spot. Bitcoin revenue nearly doubled to $65.5 million from $34 million in the year-ago period. Cash App volume, where the company boasts “15 million monthly active users,” expanded more than 100% since last year’s Q1.

Square’s bitcoin revenue has been steadily increasing since Q1 2018, during a bear market no less. It’s a reflection of retail investor demand, given the peer-to-peer nature of the Cash App. Square also placed a $10,000 weekly cap for customers buying bitcoin, which suggests that the demand for bitcoin is widespread.

Q1 2018 = $34 million
Q2 2018 = $37 million
Q3 2018 = $43 million
Q4 2018 = $52 million

CEO Jack Dorsey says that eventually, the Cash App will integrate second layer protocol Lightning Network for faster bitcoin payments. Maybe they should consider adding more cryptocurrencies. Bitcoin is working for them and there is no better time than the present. The company has been hiring for Square Crypto, but details are scarce:

We get a lot of questions about who we’re talking to, what we’re working on, and when it will be released. Breathe. This project is not only a first for a company our size, it’s also a first for any company ever. We’re learning as we go. Big things are coming. Believe. 🌀👁

— Square Crypto (@sqcrypto) April 24, 2019

Square’s earnings, released Wednesday, showed that the company made a killing by beating on expectations on many levels. However, what worries investors is that the mobile payments provider missed on payment volume and warned that things aren’t looking too rosy for the current period. As a result, Square’s stock tanked 10% today.

Square’s stock is down 10% today. | Source: Yahoo Finance

Cash App a Bright Spot

The popularity of Square’s Cash App has been growing steadily since it was rolled out in 2017. It allows people to buy and sell bitcoin.

Square said:

“Cash App volume grew nearly 2.5x year-over-year, reflecting the growing network effects, reach, and engagement of this ecosystem.”

Thanks to the app, revenue for Square’s subscription and services segment grew revenue by 126% to $219 million during Q1.

It’s grown to be one of the top finance apps in the Google Play store and Apple App store. Square doesn’t include bitcoin costs when it factors adjusted revenue.

Finicky Investors

Square posted nearly $1 billion in revenue – $959 million – for Q1. That was a 43% increase over the Q1 2018.

It posted EPS $0.11, which was higher than the estimate of $.08. It was much higher than the $.06 it posted a year ago on adjusted revenue of $307 million.

Those numbers couldn’t mitigate the disappointment over the performance of Square’s gross payment volume, which increased 27% year-over-year to $22.6 billion. However, that was shy of the $22.8 billion estimates set by FactSet.

“We continued to see strength from larger sellers. In the first quarter of 2019, GPV [gross payment volume] from larger sellers grew 37% year-over-year and accounted for 51% of total GPV, up from 47% in the first quarter of 2018.”

Of note, GPV from mid-market sellers grew 50% year over year and accounted for 24% of total GPV, up from 20% in the first quarter of 2018, Square boasted.

That’s all fine and good, but it didn’t faze investors. They were also smarting over the guidance numbers the company released. For the second quarter, Square expects EPS of $.14 to $.16, below the $.18 that was expected.

square just reported earnings, shares -7% after guidance misses. i’m old enough to remember when it did pretty much the exact same thing last quarter. $sq https://t.co/dVAqoBwK8J

— Rebecca Ungarino (@ungarino) May 1, 2019

Revenue forecasts are also lower. Instead of targeting $557 million in Q2, Square revised that to between $545 million and $555 million.

Source: Square Shareholder Letter

Investors chose to focus on the GPV and guidance news. As a result, Square has been in sell-off mode ever since.

Given the demand among Square’s Cash App customers for buying and selling bitcoin, Jack Dorsey might want to think about either expanding into other cryptocurrencies or bolstering the company’s profile for bitcoin transactions.

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