Square Inc.’s easy money days may be over. For the three months that ended in September, the fintech firm — known as a payment gateway for merchants and as the provider of the Cash App, a digital wallet that lets users send and receive money, buy stocks, and trade bitcoins — reported lower-than-expected revenue due primarily to disappointing results in cryptocurrency trading. It generated $1.82 billion in revenue, an increase of 11 percent from a year earlier, but much below than the $2.47 billion median expectation of analysts surveyed by Bloomberg, which had predicted $2.47 billion.
We can see right away that Square’s bitcoin business is riddled with inconsistencies. Let’s be honest about it. Today, Bitcoin is hardly utilized as a means of payment for goods and services. As a result, it is essentially a vehicle for speculative investments. A lack of Bitcoin trading revenue comes at an inopportune time since Bitcoin’s value has surged more than fourfold in the last year.
However, despite the decline, the company’s Bitcoin revenue still accounted for about half of Square’s total of $3.84 billion in third-quarter revenue. Compared to the previous year, the sum grew by 27% and was far lower than the $4.51 billion consensus projection. Shares of Square plummeted 5% when the report was released.
Although Bitcoin trading isn’t a significant source of revenue for Cash App today, it’s clear that it has significantly impacted the app’s user growth and user engagement for other services. If the cryptocurrency craze continues to fade, Square’s bottom line will take a huge hit.
They will have to deal with similar issues in the coming year. During the epidemic, the company’s products prospered as easy-to-use internet banking and financial services alternatives. As a result, the government stimulus payments and jobless benefits that expired in September have taken a significant toll on consumer spending.
On top of that, there was Jack Dorsey’s $29 billion acquisition of buy-now, pay-later company Afterpay Ltd. By early next year, Square hopes to finalize the deal and begin integrating the service—which allows customers to pay for products in four interest-free installments—into its payments app and checkout service for physical locations. Square and Afterpay don’t appear to be a sure thing. First and foremost, there is a lot of competition. Affirm Holdings Inc., which recently won a collaboration with Amazon.com Inc., and Klarna, a buy-now, pay-later company, are landing deals with retailers. There is no assurance that Afterpay will become the dominant player in Western markets, as its business is centered in Australia and New Zealand. And larger companies like Apple Inc. and PayPal Holdings are preparing to compete in the buy-now, pay-later sector. They could offer better bargains, reducing the profitability of the industry.
The main question is what will happen if the economy slows down. Credit losses might mount for Square if customers are unable to keep up with their payments. Square’s future has become more complex from less stimulus to cryptocurrency uncertainty and a vast purchase integration.