Last week (Thursday August 1st) Square reported its earnings for the second quarter. Following the earnings report on Thursday, the stock ended up falling over -11% due to an analyst downgrade. Despite the company posting stronger revenue / earnings per share metrics than Wall Street anticipated, the company struggled in the payments division. One of the largest components to Squares future success is it’s payment division as it competes with other companies such as Paypal. Squares “payment volume” came in lower than anticipated and it seems to be the “sell-off catalyst”. Before the earnings release last week, the stock was on a tear posting a 40% gain this year which quickly evaporated. After the trading session concluded on Friday, Square stock is now only +19% this year - which many would argue is not ultra appealing due to the fact the S&P 500 is coming in at similar figures.
Wall Street Ignoring Bitcoin Metrics
Wall street analyst did not cover another revenue stream of Square, which is its Bitcoin business. During the fourth quarter of 2017, Square implemented Bitcoin into its “Cash App.” This meant that users could simply purchase Bitcoin from the Cash App. This feature came during a time where Bitcoin was on a complete tear. In 2017, Bitcoin went from $900 to nearly $20,000 in the largest bull run we have ever seen. When Square mentioned working with Bitcoin, it added additional hype to the space. Squares presence with Bitcoin became a bit forgotten as the asset class lost nearly 90% of its value last year before going on a tear again in 2019. Jack Dorsey - CEO of Square has mentioned his interest in Bitcoin numerous times, as he believes it will change financial infrastructure. He even told the public that he is investing $10,000 a week into the asset class. Wall street seemed to ignore the Bitcoin metrics altogether as they were only focusing on “payment volume” during the downgrade.
Squares Bitcoin metrics could signify higher degrees of crypto usage globally. According to the most recent Shareholder Letter, the company recorded $260,000,000 ( 260 million ) total net revenue from its Cash App. Many will find it quite interesting that out of the $260 million, Bitcoin services nearly equated to almost 50% of that revenue share. As you can see from the figure below, Bitcoin services collected right around $125,000,000 in Q2 2019.
For the last six months ended June 30th 2019, we can compare revenue to 2018 figures. As you can see from the additional figure below, Squares had a much stronger Bitcoin revenue this year. For the last six months ended June 30th 2019, Squares Bitcoin revenue has jumped nearly +167% compared to the same period last year.
Despite Square missing expectations on “payment volume” through last weeks earnings report, it appears to be building out its Bitcoin business. With Bitcoin enthusiasts Jack Dorsey leading Square, it could be building out a service line that will shock competitors in the near future. We have not heard much crypto developments from Squares main competitors such as Paypal / Venmo. With Squares substantial market growth the last 5 years, it could be in a position to dominate the emerging industry of cryptocurrency and digital payments. In the last 5 years, Square has more than tripled in value going from $13 to a current $69/share.