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Bitcoin, Cash App, and E-Commerce Were the Big Highlights From Square's Year-End Report

By Brett Schafer - Feb 28, 2021 at 11:36AM

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This fintech giant is juggling a lot of moving parts.

Fintech giant Square (SQ 8.52%) released its fourth quarter and full-year earnings on Tuesday, Feb. 23. The company, with its point of sale (POS) and Cash App ecosystems, has gone through a wild 2020, but it came out the other side stronger than ever. Here are a few reasons why Square's business is doing so well, and why investors should have confidence it can grow over the long term. 

A Bitcoin token sitting on a computer chip.

Image source: Getty Images.

Cash App and the Cash Card

Square's biggest growth driver is the Cash App, its mobile app focused on serving the underbanked and offering peer-to-peer (P2P) payments, among other services. At the end of 2020, Cash App had 36 million monthly active customers, up from 24 million in 2019 and only three million in 2016. That is impressive user growth for a personal finance product. 

Gross profit for Cash App totaled $1.23 billion in 2020, up 168% year over year. One reason the mobile app is growing so quickly is the Cash Card, a Visa debit card that helps users treat the app like a traditional bank account. What makes the Cash Card unique are its boosts, or cash back features, which convince users to switch to the card when making everyday purchases. In its earnings letter, Square mentioned that Cash Card customers who utilized boost features paid with their cards two times more than typical cardholders. This is important because Cash Card revenue is based on taking a small slice of every dollar spent with the product, so the more times a user pays with the Cash Card, the more revenue Square brings in.


The headline story from Square's report was the company deciding to add $170 million of Bitcoin to its balance sheet, which is on top of the $50 million it bought in September of last year. These Bitcoin assets made up around 5% of the cash, equivalents, and marketable securities Square had on hand as of Dec. 31.

While I don't have any takes on whether this was a good or bad decision, I can talk about how Square is using Bitcoin to grow its business. Starting a few years ago, Square let Cash App users buy Bitcoin with one tap of a button directly from their phones. This has worked wonders as a customer acquisition tool, and it has become an easy way to market profitable products like the Cash Card and instant deposit to customers. In fact, Bitcoin and other products have made the Cash App so appealing that on average, Square only had to spend $5 to acquire a customer in 2020. When you consider that Square generated $41 of gross profit per Cash App user in the fourth quarter, the potential profitability of this business starts to take shape.

One last note on Bitcoin and Square: For whatever reason, Square is required to book all Bitcoin transfers as revenue, even though it is essentially a zero-margin business. Investors should almost ignore revenue growth entirely when looking at this company, as it makes growth look a lot better than it actually is.


We can't forget the first pillar of the Square ecosystem: sellers. Square sellers had a tough time in 2020 due to the COVID-19 shutdowns and restrictions on in-person dining across the globe (many Square merchants are restaurants). This led to a lot of churn from POS and software customers due to bankruptcies, which hit Square hard during the spring and summer. 

However, due to rapid innovations and product launches, including e-commerce and curbside pick-up software solutions, Square was able to grow its card-not-present gross payment volume (GPV) 26% in the fourth quarter of 2020, a big contributor to this segment growing revenue 5% year over year during the quarter. Omnichannel and online transactions made up more than half of Square's GPV in the same period, and they have grown as a percentage of GPV every year since 2016.

A lot of people look at Square with its $100 billion market cap, high valuation multiples, and breath-taking prior stock performance only to be scared away -- myself included. But if you believe the Cash App can truly become the all-in-one personal finance tool for young consumers, and the seller ecosystem can be a leading omnichannel payments provider, it might be worth it to pay up for shares if you have a long-term mindset.

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