Lost in the excitement of Square’s big earnings announcement Wednesday (Aug. 5) was its prowess in cryptocurrency. In addition to its significant revenue increase from seller fees and user deposits, the company’s Cash App generated $875 million of bitcoin revenue and $17 million of bitcoin gross profit during the second quarter of 2020, up 600 percent year over year. The revenue and gross profit benefited from an increase in active bitcoin users as well as growth in customer demand for the service. By comparison, Square made $306 million in bitcoin revenue for Q1.
Cash App launched bitcoin deposits in June 2019. Cash App users can purchase and sell bitcoin; they can also make cryptocurrency transfers to other wallets. Square has been a supporter of cryptocurrency, which generated $65.5 million in revenue in the first quarter of 2019. CEO Jack Dorsey has personally voiced his support for bitcoin, saying it is the best candidate to become a global currency for the internet.
The revenue and profit from cryptocurrency did not count toward the company’s earnings, which showed $1.92 billion in net revenue for the second quarter (Q2) — that’s a 64 percent increase compared to the same period one year ago. Gross profit for the app rose 167 percent compared to Q2 last year to $281 million. Stored funds, another indicator of its strength which reflects how much users keep on the app, increased 86 percent from the first quarter. The app boasted 30 million users in June — that’s up from 26 million at the close of 2019.
“We deduct bitcoin revenue because our role is to facilitate customers’ access to bitcoin,” said the company’s shareholder letter for Q2. “When customers buy bitcoin through Cash App, we only apply a small margin to the market cost of bitcoin, which tends to be volatile and outside our control. Therefore, we believe deducting bitcoin revenue better reflects the economic benefits as well as our performance from these transactions.”
“Square is poised to take meaningful direct deposit share from banks,” SunTrust’s Andrew Jeffrey said in a report, adding that “pandemic stimulus highlights Cash App’s unique functionality, which we think can ultimately supplant traditional checking accounts.”
The company addressed the pandemic in its shareholder letter, released before a hastily organized earnings call, which was due to a leak of the company’s earnings before its Aug. 5 reporting date.
“As a company, we moved quickly to address the evolving needs of our customers as repercussions of COVID-19 persisted for both businesses and individuals,” the letter said. “We believe our Cash App and Seller ecosystems are well-positioned to help our customers adapt to the current environment. Additionally, we believe our strategy of building a diverse ecosystem of products serving multiple use cases and a broad customer base adds resilience to our company. As we look toward the second half of the year, we continue to see opportunities to invest in our business for the long term.”
In something of a counter trend, the company’s physical Cash Card spend was up during the first half of 2020, despite the impact of the pandemic. Cash Card spend in the second quarter increased nearly 50 percent over Q1, driven by growth in both the number of actives and spend per active. The company said that in the second quarter, online purchase volumes increased driven by categories such as retail, food delivery and gaming. “As certain regional restrictions eased during the quarter, we also saw a resurgence of in-person spend, including at gas stations, retailers, and fast-food chains,” the company wrote.