Square (NYSE:SQ) released several new details about its peer-to-peer payments app along with its second-quarter earnings results. The biggest news is the business generated $135 million in net revenue in the second quarter, putting it at a run rate of $540 million.

That's significantly larger than its next-closest competitor, PayPal's (NASDAQ:PYPL) Venmo, which disclosed a $300 million run rate during its first-quarter earnings call. (PayPal management declined to offer an update on that metric during its second-quarter call.)

Cash App now accounts for more than half of Square's subscription and services net revenue, and it still has a lot of growth opportunities ahead of it.

A person using Square's Cash App on a smartphone

Image source: Square.

Cash Card is the key to revenue growth

Square rolled out Cash Card in the summer of 2017, and two years later, about 3.5 million consumers are typically swiping their Cash App-linked debit cards multiple times per week. That's a pretty good attach rate for Square's 15 million active Cash App users, but there's still a lot of potential for the company to improve that.

The growth in Cash Card has been key to continued subscription and services revenue growth. Square collects an interchange fee every time a consumer uses their card. And that fee comes out of the business's side, so users don't actually have to pay a dime extra.

Cash Card also paved the way for the Square Card -- the business analog of Cash Card. That product could grow to become an important vehicle for revenue growth and merchant acquisition.

PayPal has seen the impact of Cash Card on Square's peer-to-peer app and decided to emulate the product for Venmo. PayPal still sees Pay With Venmo -- an analog to its main PayPal business -- as the app's biggest source of revenue in the long run.

Starting on the next opportunity to grow Cash App revenue

One of the bigger opportunities going forward, outside of growing the Cash Card take rate, is the growth of Boosts as a source of revenue for Square. Boosts are promotional offers attached to the Cash Card for spending at certain restaurants and retailers. Boosts have been a key part of growing engagement on Cash Card.

When Square rolled out Boosts, it funded all of the promotions itself. In fact, it only struck its first partnership last quarter. The DoorDash Boost is funded -- at least in part -- by the merchant. That represents a significant shift in the economics of the program.

Up to this point, Square's funding of Boosts was contra-revenue, which decreases net revenue. As more Boosts shift from being contra-revenue to being accretive, Square will see a real...boost in net revenue.

Attracting more partners to the Boost program could also lure more users to Cash Card. Square has been very strategic in targeting Boosts to where its users are most likely to get the most value, but it's naturally had to limit the promotions since it's funding them itself. Giving consumers more options should help bring more of the 12 million-plus Cash App users without a Cash Card on board.

High-margin revenue

An important aspect of the Cash App business for Square investors is that the revenue generated from the business is generally very high margin. Square didn't break out Cash App revenue itself, but its subscription and services businesses had a gross margin of 76% last quarter. By comparison, its core payments business had a gross margin of 37%.

As Cash App becomes a bigger piece of Square's overall business (it accounted for more than 13% of net revenue excluding bitcoin last quarter), it'll have an outsize impact on its bottom line. Investors were disappointed by the company's third-quarter profit forecast, but the long-term outlook for the business is still strong.

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