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Recently, Square (NYSE: SQ) has become known for its close connection with Bitcoin (CRYPTO: BTC). Not only has the company invested in the digital coin, but it also benefits by letting its Cash App users buy and sell it. Even some analysts are starting to put weight on Square’s cryptocurrency effort; A recent increase in the price target for tech stock by KeyBanc analyst Josh Beck cited growing interest in cryptocurrency as one of the main reasons for his optimism.
While it’s true that Square’s business has an important connection to bitcoin, that doesn’t mean the business depends on it to be successful. In fact, it can be argued that Square’s constant innovation demonstrates the exact opposite: Square doesn’t need bitcoin to reward investors in the long run.
Image source: Getty Images.
Square with bitcoin
Square has come closer to bitcoin in several ways in recent years. First, it was the first major financial technology company to enable the buying and selling of bitcoin in its peer-to-peer payment app; in 2018, the company rolled out the ability to buy and sell bitcoin in its Cash app. Additionally, Square has started allowing Cash App users to send bitcoin to friends and family. Finally, since March of this year, Square has even started allowing users to send bitcoin without any transaction fees.
As a result of these bitcoin integrations, bitcoin revenue in the first quarter of 2021 was $ 3.51 billion, 11 times higher than in the previous year quarter. But investors should note that Square only takes 2% of that revenue as gross profit, or roughly $ 75 million in the quarter.
Additionally, the company invested $ 50 million in bitcoin in the fourth quarter of 2020, followed by an investment of $ 170 million in the first quarter of 2021. Bitcoin purchases were part of Square’s “continued commitment to the cryptocurrency, ”the company said in a press release on its purchases. Square believes that “cryptocurrencies are an instrument of economic empowerment, which fits the purpose of the company,” added management in the company’s first quarter letter to shareholders. “We plan to hold on to this investment for the long term.”
Square without bitcoin
But despite Square’s ties to Bitcoin, the company is still a force to be reckoned with, even without digital currency. Consider that Square’s total revenue grew 44% year-over-year in the first quarter, excluding bitcoin. In addition, Square’s ex-bitcoin Cash app revenue grew 139% year-over-year in the quarter, and Cash App business gross payment volume grew 227% for reach $ 3.4 billion. On a similar trajectory, Cash App transaction-based revenue grew 231% year-over-year to $ 92 million; “Growth has been driven by an increase in the number of business accounts and the number of transactions per business account,” Square said in its quarterly update.
Finally, some background regarding Square’s bitcoin investments shows how they aren’t big enough to be disastrous for the business if digital currency turns out to be a flop. At the time of Square’s last bitcoin investment, the company’s total cryptocurrency investment was only around 5% of the company’s total cash, cash equivalents, and marketable securities. Additionally, Square’s CFO Amrita Ahuja recently said in an interview with Financial News that the company had “no plans at this stage to make any further purchases” of bitcoin.
Image source: Square.
In short, the company – and its stocks – will likely do well in the long run, even excluding its bitcoin initiatives. Whether bitcoin turns out to be the next big thing in fintech or not, Square has repeatedly proven its ability to innovate and grow in a number of ways. The tech company’s innovative financial products and services such as Square Capital, Square Payments, Square Payroll, Square for Restaurants, the Cash app, Cash Card and point-of-sale hardware products such as Register, Stand, Terminal, Reader , etc. help this innovative fintech giant continue to capitalize on the fast growing markets it is tackling for years to come.
Of course, this does not mean that the Square stock will not be influenced to some extent by short and long term bitcoin price movements. In the long run, however, Square is likely to be successful as a business no matter what happens to bitcoin – and its stock will likely follow suit.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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