As Users Flock to Cash App, the Product Delivers Nearly Half of Square’s Profit

Square Inc. started out in 2009 as a slick new way for micro merchants and small sellers to get sophisticated point-of-sale gear along with payment processing. On Tuesday, the company showed it’s still getting more than half its gross profit from its merchant business, but its Cash App trade is catching up fast.

The peer-to-peer payment app, which features a Visa debit card and also lets users buy and sell stocks and Bitcoin, reached 36 million active users in December, the company reported, up 50% in one year and 12 times the number four years ago. Perhaps even more important for the San Francisco-based payments company, the 7-year-old app accounted for $377 million in gross profit in the final three months of 2020, or fully 47% of gross profit for the entire company and up from 27% a year earlier.

“Cash App delivered incredible growth,” said chief financial officer Amrita Ahuja during a conference call with equity analysts. The trend extended at least into January, with gross profit for the month 164% higher than in January 2020.

The app has also allowed users to exploit the remarkable runup in Bitcoin in recent months. Chief executive Jack Dorsey made it plain Tuesday he sees the cryptocurrency as more than an investment vehicle. Bitcoin, he told the analysts, will be the currency of the Internet, and, with the app, “we can make it a whole lot more useful and accessible.”

For now, though, Bitcoin is much more an investment than a medium of exchange. The currency was trading at more than $48,000 late Tuesday after falling out of the $50,000 range. That’s out of reach for most consumers, but by allowing users to buy Satoshis, or fractions of a Bitcoin, Cash App enables purchases of affordable bits. As a result, more than 3 million users bought or sold the currency last year. “Cash App continues to make Bitcoin more accessible,” Dorsey said. For now, about 10% of Cash App users are adopting Bitcoin, Ahuja said, adding that this is “an opportunity that will build over time.”

Square’s mainline business, though, remains equipping merchants with software and hardware to sell goods. Hardware revenue, which includes Square Register, came to $24 million in the quarter, a 9% increase year-over-year, with a $12-million gross loss. For the year, the product line accounted for $92 million in revenue, up 8% from 2019 as merchants sought out equipment that could handle contactless payments. For 2021, Square will double the size of its sales team, Ahuja said.

Seller gross payment volume for the quarter totaled $29.4 billion, up 5% from 2019’s final quarter. And Square merchants continue to get larger on average, with sellers at or above $500,000 in annual volume accounting for 30% of total Square processing volume, up from 28% a year earlier. All told, revenue for the quarter totaled $3.16 billion, mostly driven by the Bitcoin business, which contributed $1.76 billion in the quarter and fully $4.57 billion for the year (costs associated with the digital currency, however, nearly equal the revenue). Transaction revenue was $929 million for the quarter, up 12%, and $3.29 billion for the year, up 7%.