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Square soared in 2020, even as the pandemic hit its core customers

Daniel Roberts
·Editor-at-Large
·4 min read

Square’s bread-and-butter customers are small businesses, the same businesses hit hardest by the COVID-19 pandemic, so it’s unsurprising that Square swung to a net loss in Q1 ($10 million) and Q2 ($11 million).

Then, Square (SQ) bounced back dramatically, boosted by use of its Cash App and by a slew of analyst upgrades to the stock, based on the reasoning that Square will help those same small businesses recover from the pandemic by digitizing and beefing up their e-commerce operations.

Shares are up an eye-popping 250% in 2020. (Interestingly, Square underperformed the market in 2019, rising just 17%, after soaring 62% in 2018.)

The Q3 earnings numbers from November paint a picture of a company doing a lot right. Square returned to a profit of $37 million, with revenue up 140% year-over-year to $3.03 billion. Cash App revenue rose 174% year-over-year, and profit rose 212%. Cash App is also the home of Square’s bitcoin buying and trading feature, which it added to the app in 2018. Square’s bitcoin revenue was $1.63 billion in Q3, its first quarter with more than $1 billion in bitcoin revenue, and its bitcoin profit was $32 million, up 1,500% from Q3 2019. Thirty-two million dollars is small for a company with a $95 billion market cap, but as BTIG analyst Mark Palmer said this week on Yahoo Finance Live, Square’s bitcoin play is “a means of customer acquisition, and a very inexpensive means of customer acquisition.” Square also bought $50 million worth of bitcoin as an asset on its balance sheet in November, another inexpensive move (amounting to 1% of Square’s assets) that further aligned Square with the 2020 bitcoin price surge.

LOUDON, NEW HAMPSHIRE - AUGUST 02: Bubba Wallace, driver of the #43 Cash App Chevrolet, drives during the NASCAR Cup Series Foxwoods Resort Casino 301 at New Hampshire Motor Speedway on August 02, 2020 in Loudon, New Hampshire. (Photo by Jared C. Tilton/Getty Images)
Bubba Wallace, driver of the No. 43 Cash App Chevrolet, races in the NASCAR Cup Series Foxwoods Resort Casino 301 at New Hampshire Motor Speedway on August 02, 2020 in Loudon, New Hampshire. (Jared C. Tilton/Getty Images)

While the bitcoin moves have garnered a lot of headlines, Cash App has been the more compelling story in 2020, illustrated by the first round of government stimulus checks. Cash App allowed unbanked and underbanked customers to cash their government stimulus checks more quickly, making Square in 2020 an economic inclusion story.

“The Cash App story has been extraordinary,” Palmer says. “We think Cash App user growth is going to continue to be 30% in 2021, 30% again in 2022. And one thing that should be kept in mind is that while PayPal is operating in over 200 countries, the Cash App is only available in the U.S. and the U.K. So the potential to bring the Cash App international is enormous.”

Square also further expanded its ecosystem this year by acquiring Credit Karma Tax for $50 million. As Palmer puts it, “They have now gotten to the point where they are throughout a consumer's financial life. So they are involved in spending, they're involved in saving. The next leg of that, as far as the Cash App is concerned, is tax. It's another element that's in everybody's life. And so we view this as just another means through which Square can attract more users to the Cash App.”

In some ways, the Square story mirrors the Airbnb (ABNB) story in 2020: The pandemic hammered their businesses at first, then facilitated their rebound. (Square is a much stronger business financially, yet their market caps are about the same thanks to the enormous demand for Airbnb shares, which went public this month.) Airbnb bounced back by cutting 25% of its staff and embracing a customer shift toward drivable bookings and longer stays; Square bounced back by helping businesses climb out of the pandemic with new features like Online Checkout, launched in May, which allows merchants not already using Square to rapidly set up e-commerce operations.

Beyond the pandemic, Oppenheimer analysts wrote in September, Square is positioned “for outsized share gains as economic activity normalizes.” That sounds like the company could have an even bigger 2021—though much will depend on the course of the pandemic, something beyond the company’s control.

Daniel Roberts is an editor-at-large at Yahoo Finance and closely covers bitcoin and blockchain. Follow him on Twitter at @readDanwrite.

Read more:

Bitcoin shatters $20,000 mark as late 2020 surge continues

Square's bitcoin bet is paying off

Visa has quietly warmed to crypto, along with PayPal and Square

Square is positioned to be a winner by helping small businesses digitize post-pandemic: Oppenheimer

Why bitcoin and altcoins are hot again this summer

Square is Yahoo Finance’s 2018 Company of the Year