Square (SQ -3.84%) recently delivered another amazing quarterly report. Revenue increased 266% year over year, and gross profit increased 79%. The fintech company's popular Cash App peer-to-peer payment tool was responsible for most of that first-quarter growth, which would seem to be good news. However, Bitcoin was responsible for most of Cash App's growth. Does relying on Bitcoin for high growth put Square at risk? And what are its other growth opportunities?

A customer paying at a Square terminal.

Image source: Square.

Bitcoin and more

Square operates two separate businesses. The original is its sellers business, which provides technology solutions for small and medium-sized businesses. That ecosystem is attractive for smaller businesses that need an all-in-one financial solution. However, this part of Square hasn't fared so well during the pandemic due to the large number of small-business closures. Seller revenue increased only 19% in the first quarter, which actually reflects steady improvement -- over the past four quarters, seller revenue rose only 3.2% from the previous 12-month period.

Square's other primary business is Cash App, which provides personal finance solutions, such as peer-to-peer payments and its recently added cryptocurrency trading function. Users can even combine those two functions by sending cryptocurrency to peers through the app, and the company is expanding that interactivity. "The intersection of peer-to-peer with Bitcoin drives network effects for both," CFO Amrita Ahuja said on the Q1 earnings call.

Square has loaded Cash App with many features, such as a debit card and a loyalty program. But of late, the real growth driver has been Bitcoin trading.

How big a growth driver is Bitcoin? Cash App sales increased a whopping 666% in the first quarter. Without Bitcoin, Cash App sales rose a not-too-shabby 139%. Bitcoin revenue and gross profit both grew elevenfold year over year. For the whole company, total revenue was up 44% without Bitcoin year over year. That's still substantial, though a far cry from 266% overall.

CEO Jack Dorsey is obviously confident about the future of Bitcoin, saying he sees its potential as a "native currency" for the internet. The company purchased more than $200 million worth of the cryptocurrency over the past two quarters. 

Where the future lies

Bitcoin may be the company's main growth driver for the near future, and possibly beyond. However, despite Bitcoin's phenomenal growth, it remains a small portion of total gross profit. In other words, while it's an excellent addition to the growth metrics, it's total impact isn't as consequential as it would seem. Total gross profit in the first quarter increased 79% to $964 million, which was split about evenly between seller business and Cash App. Bitcoin contributed $75 million, or less than a tenth of the total.

Square's extra-rapid growth will fade if Bitcoin stops fueling it. But its other businesses are also growing.

Mid-size business gross payment volume (GPV) increased 43% in Q1, double the growth rate of total seller GPV. This segment is where the greatest opportunities lie for Square's seller business. The company's other key growth opportunity is in international markets. Square launched products in Japan, the U.K., and Australia in Q1.

Within Cash App, Square is focused on increasing funding accounts, since the more funds flow in, the more users engage with the app. Right now, users can fund their accounts by connecting their bank accounts to them or by receiving payments, and Square is working to make the process easier. It also launched its own bank account offering. If it can convince Cash App users to shift their primary banking over to Square, that should increase engagement as well.

What about the stock?

Square stock has had quite a run: It's up by more than 2,000% over the past five years. It typically trades at sky-high valuations, and at Monday's prices, it's changing hands for 130 times forward one-year earnings. The share price has taken a dip recently, and that trend continued after it delivered its earnings report last week. Investors might be reevaluating whether the stock warrants that much of a premium. Long-term, however, Square has many opportunities.