Shares of mobile payments company Square (NYSE:SQ) are down 37% year to date as the broad market has similarly retreated 26% in the face of a growing crisis from the coronavirus outbreak.

Despite this recent sell-off, the fin-tech company is coming off the strong momentum from its stellar fourth-quarter performance. During the quarter, Square posted sales growth of 41% year over year. After excluding the food delivery platform Caviar, which Square sold off last year, revenue was up 46%. One of the major highlights for Square in 2019 was the strong growth of its Cash App. 

Revenue up 157%

Cash App generated $1.11 billion of revenue in 2019, good for 157% year-over-year growth, and gross profit was up 135% to $458 million. The mobile payment service ended the year with 24 million monthly active users (MAUs), up from 15 million in 2018.

Square does not charge individuals for personal payments, but it does levy a fee on businesses, which the company raised from 1.5% to 2.75%. The latest shareholder letter states, "As customers send money within their networks, they bring new customers onto the platform and engage existing customers. This acquisition model has allowed Cash App to increase the number of net new customers added each year since it launched in 2013."

Person in store making mobile payment with smartphone

Image source: Getty Images.

Square has also launched several new products, enhanced app features, and redesigned the interface that has helped Cash App gain customers over the years. Its daily active customers rose 80% year over year in the fourth quarter, which was even higher than its MAU growth.

Equity investing takes off

In the fourth quarter, Square launched equity investing, providing customers access to the secondary capital markets. In the first three months since launch, equity investing has experienced the fastest adoption compared to any other Cash App product.

Investors can take advantage of the app feature that allows them to buy fractional shares with the average customer purchase in the range of $20. The app redesign resulted in easier navigation and higher user engagement, and this gave a boost to user growth in the investing vertical.

Growing revenue per customer

As we've seen, Cash App's revenue growth is far higher than its MAU growth (147% vs. 60%, respectively), which indicates average revenue per user continues to increase.

Square is spending money to acquire customers as marketing expenses were up 99% in the fourth quarter. The company's management claims that its peer-to-peer transfers network is its best customer-acquisition channel. Every individual with a Cash App account will introduce more people to the Square ecosystem by sending or receiving money. This, in turn, will let Cash App gain users across the Bitcoin, Cash Card, and investing verticals.

Cash App is also consistently featured among the top applications in app stores. Square's ability to monetize the service compares favorably to PayPal's Venmo. While Venmo had MAUs of 52 million at the end of 2019, its annual revenue run rate was just $450 million. 

The Cash App business segment accounted for approximately 24% of total gross profit and revenue in 2019. At 24 million users, Square has tremendous potential to grow its customer base for the Cash App, which will be increasingly important for the company in 2020 and beyond.