Despite a Big Quarterly Loss, Square Eyes Bright Spots in the New Covid-19 Environment

Square Inc.’s seller volume is down and its net loss more than doubled to $106 million in the first quarter. But Square’s Cash App service is thriving during the Covid-19 pandemic, and Square expects its merchant business will more than recover.

“We see significant opportunity to bring new sellers and individuals into our ecosystems and build and launch new products to serve them, both today and long-term,” Jack Dorsey, chief executive of the San Francisco-based provider of merchant processing and management software for businesses and digital services for consumers, said Wednesday on the company’s quarterly earnings call with analysts. The consumer side is centered on Square’s Cash App person-to-person payment application.

First-quarter gross payment volume in Square’s portfolio of merchants, or sellers as Square calls them, grew 14% year-over-year to $25.7 billion. As other payments companies have reported, however, Square’s volume fell precipitously in the second half of March as states’ stay-at-home orders and other measures to control the pandemic shut down businesses entirely or forced them to drastically curtail operations. Seller GPV was down 39% for April, but it had been off as much as 45% in late March and early April, chief financial officer Amrita Ahuja said on the call. “We have seen improving growth rates since mid-April,” she said.

After a strong January and February, net first-quarter revenues rose 44% year-over-year to $1.38 billion. The $105.9 million loss versus a $38.2 million loss in 2019’s first quarter resulted mainly from Square setting aside more reserves to cover future Covid-related losses from merchant transactions and in its Square Capital financing service. Square also has taken other measures to limit its exposure, including temporarily suspending issuance of regular Square Capital loans.

Despite the recent rough going on the merchant side, Dorsey said Square managed to attract a number of new sellers from competitors because of its array of point-of-sale and online products. “We are seeing a lot of opportunity here, we are seeing sellers switch to Square from competitors because of the omni-channel ecosystem,” he said.

Many of Square’s sellers have embraced online ordering and related card-not-present channels because in-store shopping or dining has been banned in so many places. Ahuja said Square’s card-not-present products generated about one-third of pre-Covid volume, but they accounted for “well over 50% of our GPV in April.”

Meanwhile, Cash App, which besides enabling P2P payments offers related services that include a companion Visa debit card called Cash Card and deposit accounts provided through partner banks, enjoyed its best month ever in April. P2P volumes, Cash Card spending, and volumes for Square’s Bitcoin trading and stock-brokerage services all hit records, according to Ahuja. 

Square actively marketed Cash App to consumers looking to park their Covid-related stimulus payments from the federal government. That effort boosted the number of Cash App users with direct-deposit accounts from 3 million to 14 million in just four weeks, Dorsey said.

Cash App users with direct deposit generate revenues that are “multiples higher” than straight P2P users, according to Ahuja, because they use more Square products. Thus, Square will try to find ways to keep them once the stimulus payments have ceased. “We do believe direct deposit is a huge opportunity,” Dorsey said.