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What I'm Watching in Square's Earnings Report

By Matthew Frankel, CFP® - Feb 6, 2021 at 6:36AM

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Square has had an incredible run. Here's what could end up driving the stock even higher.

Up by about 2,700% over the past five years, fintech giant Square (SQ -9.02%) has been an incredible performer for its investors. While growth in the payment processing side of Square's business isn't as exciting as it once was, there's still quite a bit that could take Square to the next level.

In this Fool Live video clip recorded on Jan. 25, contributor Matt Frankel, CFP, discusses what he's watching when Square reports its fourth quarter earnings on Feb. 23. 

Matt Frankel: Square's news, more Bitcoin stuff. Square bought Bitcoin as an investment. The fact that they are actually investing their balance sheet in Bitcoin to some degree is probably my least favorite thing about the company right now. I just think it's an unnecessary risk. If you really want my opinion about it. But the Cash App monetization has been absolutely phenomenal and Bitcoin does have a lot to do with it. I mentioned Cash App accounts for about one-fourth of US Bitcoin volume, which is pretty amazing. When you think about some of the big players like Coinbase and Gemini and things like that. For Cash App to be that much Bitcoin volume, and like I said, with PayPal (PYPL -3.12%) and being able to use and buy Bitcoin, it increases user engagement. If being able to buy Bitcoin on Square has been driving user engagement of the Cash App, it's very worthwhile. Cash App gross profit has more than tripled year-over-year in the third quarter, and Bitcoin had a lot to do with that. I'm curious to see how that goes going forward. Square's total net revenue was up 140% year-over-year. It's really tough to make the case of that there was anything wrong with Square's third quarter. So we'll see if they actually announce a flawless fourth-quarter again. We'll probably get our once annual update on Cash App active users. A couple of years ago it was seven million then it was about double that, about 15 million, then it has doubled again since then. I think they gave a little interim announcement. That's where that 30 million users figure came from, earlier in the pandemic. But I'm curious to see their year-end numbers. I'd be really shocked if it didn't grow even more from then. Especially with all this renewed interest in Bitcoin over the past four or five months. That's really what I am looking at. It's mostly to do with the Cash App. Their payments business is going to be great. It's going to gradually grow over time. I'm more worried about the Cash App side of the business.

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