Square's Cash App Is Gaining Even More Traction

Square (SQ -1.97%) started out by creating a way for sellers to easily take credit card payments in person. That has been a tremendous source of growth for the company, but it struggled during the pandemic. Fortunately, the company expanded beyond its original business enabling it to thrive over the past year. Its ecosystem now includes tools for sellers to list their products online and a Cash App that has powered substantial growth over the past year. On a Fool Live episode recorded on May 12, Fool contributors Brian Stoffel and Brian Withers discuss the company's most recent results and how Bitcoin helps the growth of its popular Cash App and plays a role in the company's long-term success.

Brian Withers: Moving on to Square, SQ. The bottom line for this quarter for Square is its seller segment is rebounding and the Cash App just continues to rock. Overall, gross profit is up 79% year over year and sequentially, I like to look at companies sequentially, especially software-as-a-service companies or fintech like this one, up 20%, quarter over quarter. Just from Q4 to Q1, up 20%, pretty impressive.

The seller segment is rebounding well and has had the highest growth it's had in the last five quarters, hitting $468 million [in gross profit] for the quarter. That's a 32% year-over-year gain on the back of an 18% year-over-year gain the previous quarter and up 10% sequentially. The Cash App, amazing growth machine, 171% year over year to $495 million [gross profit] eclipsing the seller gross profit and up 31% quarter over quarter.

Bitcoin revenue, $3.5 billion, more than a tenfold increase. But the Bitcoin is really what I would call a loss leader, it only drove $75 million of gross profit even though it brought in $3.5 billion in revenue. Net income $39 million, second-best performance for the last five quarters. Continues to enhance its seller platform with inventory and messages. Its point-of-sale for retail and restaurants continue to attract new sellers, and sellers using these products in the retail and restaurant business contributed $140 million to gross profit dollars this quarter, doubling year over year.

Seller gross profit in international markets grew nearly 80%, but only 8% of sellers gross profit. Really excited about this company. They didn't provide an outlook for Q2, but said that they expect to invest $1 billion to $1.1 billion in operating expenses and distributing this investment across Seller, Cash App, as well as its Tidal system T-I-D-A-L, which was a recent acquisition, which is around music and artists and enhancing the business systems for them.

Brian Stoffel: If I'm a newbie at this, and truth be told, I don't follow Square that much. So I am a newbie at this. I've heard a lot about how Square is a play on Bitcoin. I have a follow-up question. Does that mean I can actually buy a Bitcoin on Square?

Withers: Absolutely.

Stoffel: OK. All right.

Withers: You actually buy it from Square.

Stoffel: So Square buys the inventory?

Withers: Yeah.

Stoffel: OK. All right. Is that a way to play Bitcoin or like you said, is that just a loss leader, so just noise?

Withers: I think it's certainly a way to play the popularity of Bitcoin. Users on the platform, as I said, they bought $3.5 billion worth of Bitcoin last quarter in the last 90 days, compared with $4.6 billion in all of 2020. That only pulls in $75 million of gross profit this past quarter, but more importantly, I think it brings people to the Cash App.

I love these land-and-expand things, once you are in the ecosystem and once you're in the Cash App, you can see how easy it is to transfer cash to people, person-to-person, or from their bank account and experience the other benefits. I don't know if it's necessarily a play on Bitcoin and the increasing value of Bitcoin, but certainly the popularity of Bitcoin.