Why is Square down 56%?

Square Payment Volume Disappoints Amid Further Bitcoin Investment

Square’s earnings showed robust growth, but the payment solution provider’s shares fell as its gross payment volumes missed estimates.

Square (NYSE: SQ) shares fell after hours as the company’s December-quarter financials beat analyst expectations but gross payment volume was slightly below estimates. The company is one of the fastest-growing fintechs in the world and has witnessed the popularity of its Cash App soar during COVID-19. In general, digital payment tech companies have been some of the biggest winners throughout the health crisis as they have made it easier for people and businesses to send and receive payments safely. 

Square’s fourth-quarter earnings 

On Tuesday, the San Francisco-based company recorded better-than-expected Q4 results;

  • Adjusted earnings of $0.32 per share, up 39% year-over-year (YoY), beating the Street’s estimate of $0.24. 
  • Revenues of $3.16 billion, up 141% YoY, smashed the consensus forecast of $3.11 billion. 
  • Gross profit of $804 million, up 52% YoY, beating forecasts of $801 million. 
  • Sales for its Seller system, which allows merchants to accept mobile card payments via a plastic dongle that’s inserted into a mobile phone, grew to $987 million. 
  • Subscription and services-based income climbed to $449 million, up 60% YoY. 

Square’s gross payment volume falls short 

Shareholders were disappointed with Square’s gross payment volume (GPV) of $32 billion for the quarter, which was up 12% YoY but still fell short of Wall Street’s prediction of $32.1 billion. Square’s GPV provides investors with an overall picture of transaction volumes and is the main gauge of the total dollar amount being transferred through its payment services. The higher the volume of payments tracked by GPV, the more transaction revenue Square can generate.

Square stated that revenue growth was driven by more people using the Cash App to buy and sell Bitcoin. The mobile payments company benefited hugely from the recent Bitcoin rally, helping Square generate $1.76 billion in profit. Excluding Bitcoin, Square’s total net revenue increased to $1.4 billion, meaning the company was heavily reliant on cryptocurrency transactions on its platform during the quarter. 

During the earnings call, Square also disclosed that it had invested a further $170 million into Bitcoin in addition to its earlier $50 million purchase. This investment could provide the company with further income down the line, yet the worry for investors here is that financial regulators might begin to crack down on Bitcoin. 

Square is growing its user base 

Square shares have surged over 16% year-to-date as investors largely ignored the threat of small businesses closing during the pandemic and how this could affect the company. Instead, shareholders focused on the growth of the company’s Cash App and how the service could help people make payments safely during the pandemic. At the end of 2020, its Cash App had 36 million users, up from 30 million at the end of Q3. 

Square’s revenue growth is benefiting from the shift to e-commerce and growing popularity for its digital cryptocurrency transaction services offered by its Cash App. Whether investors need to be worried about Square’s reliance on Bitcoin is still a concern for many. However, Bitcoin continues to receive legitimacy in the eyes of the financial world as more companies like Tesla invest in it. This might just be a play that could work in the company’s favor but is still one that investors are watching closely. 

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