Payment processing company Square Inc (NYSE: SQ) reported better-than-anticipated fiscal 2020 fourth-quarter earnings and revenue. The company also revealed that it had invested another $170 million in Bitcoin (BTC). Despite the strong quarterly results, the investment in Bitcoin triggered a sell-off, reflecting Bitcoin’s downtrend in the crypto market. The stock closed at $227.11, down $10.21 or 4.30% from the previous close.
San Francisco, California-based Square reported fourth-quarter 2020 revenues of $3.158 billion, compared with $1.313 billion in a similar period last year. Analysts surveyed by Thomson Reuters had anticipated the company to post revenues of $3.09 billion for the reported period.
For the quarter ended December 31, 2020, net income was $293.959 million, or $0.59 per share, down from $390.94 million, or $0.83 a share, in the quarter ended December 31, 2019. In 4Q 2019, the company had gained $373.445 million from an asset sale.
Excluding share-based compensation expense, amortization of intangible assets, gain on revaluation of equity investments, clearance of long-term debt, and acquisition-related costs, among others, the 4Q 2020 adjusted net income was $169.421 million, or $0.32 per share, up from $110.77 million, or $0.23 a share, in 4Q 2019. Wall Street analysts had expected the company to report $0.24 per share for the recent quarter.
Segment-wise,
- Transaction-based revenue increased 11.6% y-o-y to $929.011 million.
- Subscription and services-based revenue were $449,371, an increase of 59.7% from last year.
- Hardware revenue was $24.363 million, up 9.4% on a y-o-y basis.
- Bitcoin revenue (via Cash app) was $1.756 billion, compared with $177.57 million in the comparable quarter of 2019.
During the quarter, the company invested $170 million in Bitcoin. Specifically, Square bought roughly 3,318 Bitcoins, adding to its holding of 4,709 Bitcoins bought in October 2020. At the end of 2020, the company had 5% of its total assets in Bitcoin.
Regarding the purchase of Bitcoin, the company’s CEO issued the following clarification: “We believe the internet is a native currency. We believe that it has the highest probability of empowering more people in the economy in a fair way. We’re doing a lot to ensure this from a product standpoint, open-source development, and open patent perspective. And by us owning bitcoin, our incentives are aligned with skin in the game.”
Concerning rewards program Boost, which is incorporated in the Cash Card, the company pointed out that its customers opted for the program at a higher pace and spent roughly twice over other Cash Card customers. During the fourth quarter, the company introduced a unique feature that enables customers to get rewarded in Bitcoin in real-time for making purchases using Cash Card.
During the December 2020 quarter, gross revenue from omnichannel and web-based sellers accounted for over 50% of the category’s overall revenue, increasing from about 30% in 2018. The company also generated a gross profit of $100 million from its rollout of Square Invoices last year.
In the near-term, the fluctuations in the price of Bitcoin can be expected to reflect in the stock.
The stock is declining after facing resistance at 240 levels. The next significant support is anticipated only near the psychological level of 200. Additionally, the stochastics RSI indicator is in the bearish zone. Therefore, we are expecting the stock to remain in a downtrend in the short-term.
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