While Square's (NYSE:SQ) seller ecosystem is facing a massive challenge during the coronavirus pandemic, its consumer-facing Cash App is holding up quite well. In fact, CEO Jack Dorsey told analysts Cash App saw a record number of signups in the third week of March.
Cash App has already grown to become a meaningful contributor to Square's overall business. Last year, it accounted for over $1 billion in revenue and 27% of the company's total gross profit. Those numbers should continue climbing as Square improves its Cash App user monetization and continues to grow its user base rapidly. Indeed, management said gross profit from Cash App in January and February grew 118% compared to 2019, versus just 32% for the seller business. The effect of coronavirus could widen the gap between those numbers even further.
Here's how the response to coronavirus could have a positive overall effect on Cash App.
Greater interest in investing
Square launched bitcoin investing in Cash App in 2017. It built upon its learnings last year by introducing fractional share investing.
That feature is seeing increased use these days. CFO Amrita Ahuja said adoption and engagement on the investing feature has accelerated in recent weeks due to market volatility and the buying opportunity presented by the decline in stock prices. That's especially notable considering Dorsey said the feature "has seen the fastest adoption of any product launched within the cash ecosystem" during Square's fourth quarter earnings call.
Currently Square doesn't generate much gross profit from investing directly. That said, Ahuja told analysts the average Cash App user who buys and sells stocks or bitcoin through the investing feature generates two to three times as much revenue as other users. Furthermore, there may be additional opportunities in the future to monetize those users with premium investing features.
Stimulus checks could produce a stimulus for Cash App
The U.S. government is sending out checks to millions of taxpayers, and there's a good chance a large portion of Cash App users will get some of that money from the stimulus bill.
Ahuja said the checks could have a similar effect on Cash App usage as tax refunds. She said Square usually sees a seasonal benefit starting in February as those government checks start rolling in. The result is a greater amount of peer-to-peer transactions, direct deposits, stored funds, and spend on Cash Card.
Driving growth in direct deposits, stored funds, and Cash Card transactions has strong correlation with customer lifetime value. Combined with the broad uplift in Cash App adoption the company's seen in recent weeks, the consumer response to the stimulus checks could lead to a lot of long-term value for Cash App.
Incentives for Cash Card adoption
The one area of the Cash App business that's been hurt by the response to the coronavirus pandemic is Cash Card. The prepaid debit card enables users to spend their Cash App balance anywhere debit cards are accepted. Ahuja noted Cash Card spend growth has decelerated since mid-March.
That said, Square is being smart with its Boost program, which offers instant cash back for certain Cash Card purchases. It's focusing on cash back at grocery stores, pharmacies, and other consumer staple stores. It also has a long-standing partnership with DoorDash, which has seen an uptick in orders while consumers practice social distancing.
The cash back feature may become very important to some users looking to save money wherever they can as they see their hours cut or lose their jobs entirely. Driving Cash Card adoption leads to significant long-term revenue for Square, as the company takes a small percentage of each transaction.
As more and more people sign up for Cash App for one reason or another these days, Square has several big opportunities to bring them deeper into the ecosystem of services offered in the app. That could ultimately lead to great long-term revenue and gross profit growth for the consumer side of Square's business, bolstering its challenged merchant services business.