Cryptocurrencies have been the talk of the investment world in 2021, boasting returns that have crushed the S&P 500. But some seasoned investors remain perplexed, as even the most popular tokens fail to receive widespread consumer adoption as payment solutions.
Dogecoin (DOGE -8.71%) is one of them. Despite a 4,500% gain this year, just 1,700 (mostly obscure) businesses accept the token as payment for goods and services. That number isn't growing quickly, either, with just 50 new entities signing on each month. This realization among investors may be why Dogecoin, which was started as a joke to mock cryptomania, has fallen by almost 70% from its all-time high.
But these challenges haven't stopped some payment giants from experimenting with cryptocurrencies. Rather than take a flier on a crypto that was never meant to do more than provide laughs, prospective Dogecoin buyers could do well to consider another, proven high-growth stock instead.
Square is a consumer finance powerhouse
If you're shopping for a fintech company that constantly pushes the boundaries of innovation, look no further than Square (SQ -4.53%). The company started its journey in the payments hardware space, where it offered electronic readers to brick-and-mortar businesses for credit-card transactions. But it has since expanded to consumers and now is used by more than 40 million people each month, and it's not stopping there.
Image source: Getty Images.
Square's CashApp is a revolutionary all-in-one consumer finance smartphone app. It allows instant peer-to-peer money transfers, and users can obtain a Visa debit card that's linked to their CashApp account; the card can be used to withdraw money or make payments at stores.
But CashApp Investing -- the brand's stock and crypto trading platform -- sets it apart from other payment technologies. Aggregating banking, payments, and investing allows for the free flow of money between services, empowering users to make timely decisions about their finances without the hassle of moving funds between multiple platforms.
Bitcoin is key to growth, but it's not everything
One of the main growth drivers for CashApp is Bitcoin (BTC -6.78%). In the recent second quarter, users purchasing the cryptocurrency were responsible for $2.7 billion of CashApp's $3.3 billion in total revenue. And in the first half of this year, Bitcoin was the overwhelming standout for Square as a whole.
|
Metric |
First Half 2020 |
First Half 2021 |
Growth |
|---|---|---|---|
|
Square Bitcoin revenue |
$1.18 billion |
$6.23 billion |
427% |
|
Square total revenue |
$3.30 billion |
$9.73 billion |
194% |
DATA SOURCE: SQUARE.
Square counts each Bitcoin sale as revenue, even though it only takes a small transaction fee equal to about 2%, so gross margin is very slim in this segment. Despite $6.23 billion in first-half Bitcoin revenue, that yielded only $129 million in gross profit.
However, Square generated $2.1 billion in gross profit in the first half of this year across its entire business, which is an 85% increase compared to the first half of 2020. So even though Bitcoin now produces the majority of the company's revenue, it doesn't contribute much to Square's earnings.
Why Square is a buy before Dogecoin
Square's business strategy has resonated with investors, and its stock has gained almost 2,000% during the past five years. The returns have far outpaced its biggest competitor PayPal, which is up about 570% during the same period.
When zooming out to observe the big picture, Square has grown at an impressive rate, and its transition into a profitable company is just as notable.
|
Metric |
2017 |
2021 (Estimated) |
CAGR |
|---|---|---|---|
|
Revenue |
$2.2 billion |
$19.1 billion |
71% |
|
Earnings (loss) per share |
($0.17) |
$1.89 |
N/A |
DATA SOURCE: SQUARE, YAHOO! FINANCE. CAGR = COMPOUND ANNUAL GROWTH RATE.
Square keeps pressing forward. The company recently announced a $29 billion all-stock acquisition of Afterpay, the market leader in the buy now, pay later industry. Square intends to integrate the consumer-lending service into CashApp to add yet another dimension to its menu of offerings.
The diversity of Square's business appear simply unattainable for a lone crypto token like Dogecoin. So far, the coin has failed to build a case for usage by consumers and businesses, and it therefore remains a mere vehicle for speculation. That's not to say it can't evolve over time, but a company like Square is lightyears ahead; plus Square offers investors some exposure to the cryptocurrency industry through CashApp.
For investors considering Dogecoin, or who bought it at much higher prices, it's never too late to pick up a quality stock like Square. Over the long term, you might be glad you did.
