- Back in March, Square was left for dead.
- And yet, Square managed to pivot its business around, change shape, and start rolling as fast and as far as few thought it was possible.
- The company is gaining momentum; those focusing on the bitcoin’s revenue being worthless can’t see the forest for the trees.
- Despite the recent pullback, I think long-term investors are better off holding to their shares.
“Born round, you can’t die square”, is an Italian saying meaning that people and things don’t really change. I wonder if the opposite also holds true because that is what Square (SQ) has been doing over the past few months. Back in March, the company was left for dead. More than 30% of Square-powered small businesses were forced to close, and the stock tumbled to almost $30 per share. It almost made sense at the time, with the main revenue-generating business line blowing up in the air. And yet, Square managed to pivot its business around, change shape, and start rolling as fast and as far as few thought it was possible.
Square was basically left with only Cash App, a single application on the app store, to support a multi-billion dollar company. Back in April, I stressed the importance of looking beyond COVID-19, and that the fight was not lost. I was right, and I was wrong. The Cash App business exploded thanks to the pandemic (leading to a 200% gross profit growth year over year), but I did not expect such growth to happen as early as Q2. Overall, the company achieved a 242% revenue increase YoY in Q2, and from here, more than a square this company looks like a fast-rolling sphere. Looking at the Q2 results, you can quickly spot that the $875 million in bitcoin revenue made all the difference over last year’s result.
Figure 1
Source: Square Q2 Earnings Filing
Square makes barely any profit on Bitcoin revenue line, but if you take that as “worthless revenue,” you are looking at it from quite a bad angle. All the bitcoin revenue comes from Cash App users, and the possibility of buying and selling bitcoin on the app is only one of the several features that are contributing to the success and stickiness of the company’s app. Cash App is now used by more than 30 million customers, with 7 million monthly active Cash Card customers. Due to the network effects underlying the app, it’s spreading like a weed and it gets stickier and stickier the more people start using it. Looking at the app trends in terms of downloads, the future looks bright, and Cash App growth is not slowing down. The app has been the number one most downloaded Finance apps on the store for months and months, and it is ranked fifth in the overall (all-apps) downloads rankings. Have you ever seen a financial app spread so much, so fast? I don’t think so. And if you thought most of the growth is behind us, the download chart below is showing otherwise. Cash App hit the third spot in the most downloaded app on the Android store at the end of August, achieving even further acceleration in September.
