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11 May 2021

Square Earnings Helped by Bitcoin Demand

Square, the payment processer with a market capitalisation now in excess of US$100bn, originally bloomed as an idea when Jim McKelvey, a friend of the company’s CEO Jack Dorsey, was unable to complete a US$2,000 sale for his business selling glass taps and fittings as he could not accept card payments. The two used this inspiration to found the company in 2010, with its first product being the Square card reader that allowed small business owners to accept card payments by connecting the device through a mobile phone’s audio jack. This innovation is where the company’s name was coined.

Square’s technology revolutionised card payments for small businesses and, since then, it has progressed from a single-product business into a well-diversified payment giant. The company’s Q1 2021 earnings highlight remarkable levels of growth, especially with the lack of small businesses using their payment app over the last year. First quarter revenue rose to US$5.06bn, a 266% increase from the same period in 2020. A rise in Bitcoin transactions helped fuel this, with Square offering users the ability to buy and sell select cryptocurrencies through Cash App, Square’s peer-to-peer money transfer service. Revenue from Bitcoin transactions came in at US$3.5bn, yet gross profit from the service only reached US$75m, equating to 7.7% of total gross profit at US$964m. Cash App made a significant contribution to this, reporting US$495m in gross profit, up 171% year-on-year.

The two business ventures allowed Square to adapt and benefit from the on-going digital transformation in society and are likely to drive growth in the future. Also set to propel growth is a return to normality for the brick and mortar businesses which make up Square’s seller ecosystem, with expectations of 136% year-on-year gross profit growth for Q2.

Square’s business model therefore looks set to bring the payment processer further success. The development of Cash App into a one-stop shop for banking, investing, and spending is gaining more traction. The ecosystem for sellers is poised to rebound with strength, and there is also potential in its crypto offering, which could provide long-term growth in transaction volume despite possible price fluctuations.

CEO Jack Dorsey believes Bitcoin has the potential to become the native currency of the internet and wants to further that as much as possible. “Our focus, first and foremost, is on enabling... bitcoin to be the native currency,” said Dorsey. “It removes a bunch of friction for our business, and we believe fully that it creates more opportunities for economic empowerment around the world.”. The company’s own investment in Bitcoin – currently at US$472m based on current market prices – is US$272m greater than the initial value of their initial investment.

Overall, a strong quarter for Square, reporting a first-quarter profit of US$39m, or eight cents a share compared with a loss of US$105.9m, or 24 cents a share, in last year’s first quarter. At the time of writing, the share price was up 2.87% after hours.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Square Earnings Helped by Bitcoin Demand
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