More than half of Square’s revenue now comes from bitcoin trading

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Square, which built its reputation on bringing card acceptance to the small-business masses, has now officially linked its fortunes to bitcoin trading as it delivered 56% of its fourth-quarter revenue.

Square's two main business lines are its Cash App platform for P2P payments and Seller Ecosystem for merchant card acceptance. However, bitcoin trading overshadowed both of those audiences, having surpassed 56% of its fourth-quarter revenue.

Bitcoin trading happens through Square's Cash App, which began life as a P2P money transfer app, has grown into a more complex financial services app that includes stock investing, bitcoin trading and a debit card for in-person payments. The Cash App generated $2.17 billion in revenue and $377 million in gross profit for the fourth quarter of 2020, up 502% and 162%, respectively, compared to the same quarter of 2019. Bitcoin revenue accounted for $1.76 billion of the Cash App’s fourth-quarter revenue and $4.57 billion of its full-year revenue.

Square is planning to use this cash flow to reinvest in the Cash App's capabilities as a financial services platform.

“For Cash App, we're going to focus on increasing the transaction limits across the ecosystem, expand our deposit capabilities and increase the quality of our customer service, all in order to strengthen our foundation and reach new customers," Jack Dorsey, Square's CEO, said in an earnings call. "We're also going to double down on our commitment to bitcoin and continue to look for new ways to connect our product lines within the Cash App.”

Square is putting that money back into the bitcoin ecosystem, having continued to purchase its own stash of the cryptocurrency.

“Today, we announced a $170 million purchase of bitcoin on top of the $50 million we bought in the fourth quarter,” Dorsey said. “Why are we doing this? We believe the internet needs a native currency, and we believe bitcoin is it. We believe it has the highest probability of empowering more people in the economy in a fair way.”

More than three million users bought or sold bitcoin on the app in 2020 and in January 2021 alone, and of these, more than one million customers purchased bitcoin for the first time.

For the full year of 2020, Cash App generated $5.97 billion in revenue and $1.23 billion in gross profit, up 440% and 168% year-over-year, respectively. Excluding bitcoin, Cash App revenue was still strong for the fourth quarter at $416 million and $1.4 billion for the full year of 2020, up 127% and 137% year-over-year, respectively.

Square’s Seller Ecosystem generated $987 million in revenue in the quarter, up 5% from a year earlier. For the full year Seller generated $3.53 billion in revenue, up 2% from 2019.

Square Capital, which is part of the Seller Ecosystem, generated 57,000 loans in the fourth quarter, totaling $254 million, down 62% from a year earlier.

Square processed $32 billion in gross payment volume for the fourth quarter, up 12% from a year earlier. For the full year gross payment volume processed was $112.3 billion, up 6%.

The Cash App also experienced strong growth in the number of monthly active users in 2020, reaching 36 million, up 50% from 2019’s 24 million user base. Square reported that it has had over 80 million consumers transact on its Cash App since its inception in 2013. Further it reported that P2P transactions were its primary method of new account acquisition, which on average costs Square about $5 per new user. For the year, P2P transactions were up by nearly 50%, with customers sending each other more funds and doing it more frequently.

Net income was $294 million for the fourth quarter, down about 25% from a year earlier. Square noted that net income in the three months was boosted by a one-time gain of $274 million related to a gain on equity investments, of which $255 million was as a result of the mark-to-market valuation of its DoorDash investment.

This article originally appeared in PaymentsSource.
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