Square says demand for bitcoin slowed in the third quarter but picked up in October; profits weigh on equities

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Square Inc. reported lower than expected revenue for the third quarter as less volatile bitcoin prices impacted demand, although the company’s CFO noted a “strength” in volume in October.

The company posted a third quarter breakeven, after gaining $ 37 million, or 7 cents per share, in the prior year quarter. On an adjusted basis, Square SQ, -1.99% gained 37 cents per share, down from 34 cents per share a year earlier, while analysts tracked by FactSet expected 38 cents per share. The fintech company increased revenue to $ 3.84 billion, from $ 3.03 billion, while analysts modeled $ 4.39 billion.

Shares fell about 3% in after-hours trading after the report was released.

Square’s total revenue for the last quarter consisted of $ 1.30 billion in transaction-based revenue, $ 695 million in subscription revenue, $ 37.3 million in hardware and software revenue. $ 1.82 billion in bitcoin revenue. Analysts tracked by FactSet expected $ 2.6 billion in bitcoin revenue.

Bitcoin BTCUSD, + 1.72% is a relatively low margin business for Square, and the company incurred $ 1.77 billion in bitcoin costs during the quarter.

“Bitcoin’s revenue and gross margin have benefited from year-over-year increases in the price of bitcoin and the number of bitcoin assets,” the company noted in its letter to shareholders, although both revenue and the Bitcoin’s gross profit both declined on a sequential basis, which Square largely attributed to “the relative stability of the price of bitcoin.”

CFO Amrita Ahuja noted on a call with reporters that, as bitcoin prices rose in October, the company “saw the strength” of demand.

The company’s total gross profit for the third quarter was $ 1.13 billion, up from $ 794 million a year earlier. Analysts were expecting $ 1.15 billion. Speaking on the call with reporters, Ahuja argued for the importance of the gross profit metric as a measure of Square’s performance.

Square’s Cash App mobile wallet generated gross profit of $ 512 million, while analysts tracked by FactSet were looking for $ 536 million. Wolfe Research analyst Darrin Peller suggested the failure was not particularly surprising.

“Prior to printing, we thought Cash App would face the diminishing impact of the benefits of the government stimulus and declining revenues from bitcoin,” he wrote in a note to clients. “We believe this dynamic was known to most investors, who expected gross profit of around $ 510 million from Cash App.”

The results were “unusual for Square, especially given the company’s revenue / earnings track record,” Wedbush analyst Moshe Katri told MarketWatch. The results likely reflected “the impact of the fading stimulus payments,” which was a “similar theme to other payment names as well,” he continued.

During the third quarter, Square saw a smaller portion of transactions conducted through debit cards, while the average transaction size also declined year over year. Despite the declines, Square noted in its letter to shareholders that “these trends have remained high from historical periods in part due to changes in consumer behavior due to COVID-19 and government disbursements, which may not materialize. continue over the next few quarters ”.

Square had a gross payment volume of $ 45.43 billion, up from $ 31.73 billion a year earlier. The FactSet consensus was $ 45.61 billion.

Square expects the seller’s GPV to increase 42% year over year in October.

Square has the largest short stake in the IT and outsourced services industry at $ 9.7 billion, according to data from S3 Partners. This short-term interest has increased by $ 996 million in the past 30 days. Square’s short interest as a percentage of its free float is 9.81%.

Square shares have fallen around 7% in the past three months while the S&P 500 SPX, + 0.42% has risen around 6%.

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