Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Square (SQ) making money from Bitcoin?

Square (SQ) demonstrates that Fintech companies can make money from cryptocurrencies.

Square Inc. (NYSE: SQ) claims its Cash App generated $875 million in Bitcoin (BTC) revenue in 2nd Quarter 2020. Moreover, Square claims the Cash App’s Bitcoin revenues grew by 600% in Second Quarter 2020, reports.

Impressively, Square claims the Cash App’s Bitcoin’s gross profit grew by 711% in 2nd Quarter 2020. However, the Cash App’s Bitcoin gross profit was $17 million in 2nd Quarter 2020.

Hence, Square shows cryptocurrency can generate enormous amounts of revenue for Fintech companies. If Square can sell $875 million worth of something as slow and cumbersome as Bitcoin, I think Cash App could sell $5 billion or $10 billion of a good cryptocurrency.

Why is Cash App selling so much Bitcoin?

For those you unfamiliar with it the Cash App combines a digital wallet, a peer-to-peer (P2P) money transfer tool, and a wealth management tool. The Cash App is fast, and it works – unlike some other digital wallets out there.

I think the Cash App is popular because it allows users to buy fractional amounts of stocks and cryptocurrencies. Notably, the Cash App’s non-Bitcoin revenues were $325 million in 2nd Quarter 2020, up 140% from second quarter 2019.

Strangely, Podcast king Joe Rogan could drive the Cash App’s success. To explain, what Rogan calls “the Mother-Fucking Cash App” is a big sponsor of the Joe Rogan Show. In his podcasts, Rogan tells his legions of listeners they can use the Cash App to buy Bitcoin.

Is Fear Driving the Cash App’s Growth?

Beyond Rogan, I think fear is driving Cash App’s Bitcoin revenues. To explain, I think ordinary people fear coronavirus could destroy the US dollar and the American economy. Hence they are looking for alternative assets and Bitcoin (BTC) is a dollar alternative.

People buy Bitcoin (BTC) because they fear fiat currencies and traditional investments will collapse. Square profits from the fear because the Cash App is one of the most convenient ways for ordinary people to buy Bitcoin.

Therefore, I think the coronavirus is driving the Cash App’s revenue growth. Besides Bitcoin, Cash App lets people receive payments without a bank.

Square’s Incredible Revenue Growth

Beyond the Cash App, Square is experiencing incredible revenue growth.

In fact, Stockrow estimates Square’s revenues grew by 63.82% in the quarter ending on 30 June 2020. Moreover, Square’s revenues grew by 43.96% in the quarter ending on 31 March 2020 and 40.85% in the last quarter of 2019.

In detail, Square’s quarterly revenues rose from $1.381 billion on 31 March 2020 to $1.924 billion on 30 June 2020. Additionally, Square’s quarterly gross profit grew from $538.50 million on 31 March 2020 to $596.76 million on 30 June 2020.

Square (SQ) loses Money

Thus, Square (NYSE: SQ) is growing like a weed, but is it making money? No, the latest financial numbers show Square loses money.

Square reported a -$23.05 million quarterly operating loss on 30 June 2020. Notably, that quarterly operating loss shrank from -$90.29 million on 31 March 2020.

Additionally, Square reported a -$105.89 million quarterly common net loss on 31 March 2020. The quarterly common net loss fell to -$11.48 million on 30 June 2020.

Is Square (SQ) Generating Cash?

Square (SQ) is burning cash instead of generating cash. Square reported a negative quarterly operating cash flow of -$273.13 million on 30 June 2020. The quarterly operating cash flow fell from $121.30 million on 31 March 2020.

In addition, Square reported a negative quarterly ending cash flow of -$3.71 million on 30 June 2020. The ending cash flow fell from $2.010 billion on 31 March 2020.

Predictably, Square is financing its expansion. Square reported a $918.12 financing cash flow for the quarter ending on 31 March 2020. That financing cash flow fell to $448.69 million on 30 June 2020.

Thus, I think Square is following the classic Silicon Valley strategy of borrow money to finance growth. Then hope you can grow fast enough to generate enormous amounts of cash from operations.

Unfortunately, the strategy is not working now but I think Square’s revenues are growing fast enough to make the stratagem work. The obvious danger at Square is that growth could end before the revenue returns.

What Value Does Square (SQ) Have?

I think Square (SQ) offers some value now. For instance, Square had $2.687 billion in cash and short-term investments on 30 June 2020.

Square’s cash and short-term investments grew from $2.484 billion on 31 March 2020 and $1.221 billion on 30 June 2020. Thus, Square’s cash is growing even though it generates little cash.

Furthermore, Square had total assets of $7.812 billion on 30 June 2020. Thus, I think Mr. Market overvalued Square at $151.73 on 19 August 2020.

Yet Square has experienced dramatic share value growth in a pandemic. Mr. Market paid $63.83 for Square shares on 2 January 2020 and $155.10 on 21 August 2020.

Square offers no Value

Thus, I think Square offers an enormous margin of safety now because of its astronomical growth rate. However, that growth could vanish overnight.

Given that reality, I advise investors to avoid Square Inc. (NYSE: SQ). I believe Mr. Market grossly overvalued Square at $155.10 on 21 August 2020. I think investors need to avoid Square because at present it offers nothing but growth.

For example, Square loses money and pays no dividend. Therefore, I think investors need to stay away from Square until turns that growth into money.

However, Square has done us all a great service by proving that ordinary people will buy cryptocurrency. Now, Square needs to prove it can make money through cryptocurrency.