Square's Bitcoin revenue soars, eyes lending, TIDAL app engagement

Dive Brief:

Square Inc., the payment providing company, said its Bitcoin revenue grew 11 times year-over-year to $3.5 billion in Q1 2021 compared to $308 million in Q1 2020. Net income for the quarter was $39 million in Q1 2021 compared to a $106 million loss in Q1 2020.
CashApp, Square's peer-to-peer payment and investing application, generated $4.0 billion of revenue and $495 million of gross profit, which amounted to an increase of 666% and 171% year-over-year (YoY), respectively. The company is beta testing an expansion of its CashApp offering by lending to individuals, Square CEO Jack Dorsey said.
Fresh off acquiring TIDAL, a music streaming app, Square seeks help budding artists grow their businesses. The payments company "saw a ton of parallels between what an emerging artist has to go through, and what a small business has to go through," Dorsey said during the earnings call.

Dive Insight:

Square has been betting big on Bitcoin since it launched the Bitcoin trading option on CashApp in 2018. The San Francisco-based company has seen one of the strongest quarters in terms of user engagement with their Bitcoin feature, CFO of Square Amrita Ahuja said.

The company posted a record 266% increase in total net revenue YoY, to $5.1 billion from $1.4 billion in Q1 2020, mainly due to its Bitcoin operations. Excluding Bitcoin, total net revenue in the first quarter was $1.6 billion, up 44% YoY.

"Our focus, first and foremost, is on enabling [and this is going to be a long term focus on enabling] Bitcoin to be the currency of the internet, which can help in removing a bunch of friction for our business … and creates more opportunities for economic empowerment," Dorsey said. "And you should see more activity from us over the year toward this goal."

In March, the company launched a feature where CashApp users could send Bitcoin to each other at no fee. Square has also started programs like Square Crypto, where people can get paid in Bitcoin by either becoming a Bitcoin miner or a developer and designer of the technology.

The company further established Crypto Open Patent Alliance (COPA), a non-profit that wants to stop companies from locking up useful technologies in patents, hindering innovation.

Square banks on banking

Last year, Square received conditional approval from FDIC for an Industrial Loan Companies (ILC) charter, allowing Square to offer loans to small and medium-sized businesses (SMBs).

Square Capital, the lending arm of the company, facilitated approximately 136,000 loans in the first quarter of 2021, totaling $923 million, up 68% YoY. Paycheck Protection Program (PPP) loans totaled $531 million across more than 57,000 loans while Flex loans, for businesses, totaled $392 million across more than 78,000 loans.

In March 2021, Square launched its industrial banking operations. While it will be "immaterial in the short term," it allows Square flexibility and expansion opportunities, according to an analyst report from William Blair published on May 4th.

"It will be used for business loans and consumer deposits," Blair said in the report. "Square assures us that it does not intend to hold loans long term on the balance sheet of the bank at this time."

Square aims to bring its lending experience to CashApp as a payday lending option with low APR. The company sees "a pretty incredible opportunity around lending to individuals," Dorsey said.

"We are currently experimenting with that with a small group of customers in small amounts," Dorsey said. "We started with a small nominal amount, and as we get feedback and as we understand payback rates and how it's working, we'll make further decisions and roll it out to more people."

TIDAL wave

This past quarter, Square bought a majority stake in TIDAL, a music streaming service for $297 million. Square will help budding artists who may struggle with streaming revenue by providing tools that can help them release their work and drive user engagement on CashApp, Dorsey said.

"We looked at TIDAL in the first place because we see such an intersection between our customer base in CashApp and general culture and music and what we find in TIDAL," Dorsey said. "We think there's a ton of connection points between CashApp and TIDAL. We're super excited to explore those."

"There's a lot to the broader ecosystem where artists get paid, inclusive of merchandise and ticketing and all these other things," Dorsey said. "[We] can bring the fans closer and CashApp is in an incredible way for us to do that because of the surface area."

Payment volume

While payment volume stayed the same for merchants under $125,000 of annualized Gross Payment Volume (GPV), Square's mid-market and larger market merchants saw an increase in volume.

For small merchants with annualized GPV less that 125,000 was $11.6 billion in Q1 2021, compared to $11.3 billion Q1 2020. For merchants with annualized GPV between $125,000-$500,000, payment volume increased to $9.1 billion in Q1 2021, compared to $7.1 billion last year. Merchants with more than $500,000 of annualized GPV, payment volume increased to $9.1 billion in Q1 2021 from $6.4 billion last year.

Total GPV for all merchants and CashApp sat at $33.1 billion in Q1 2020, compared to $25.7 billion in Q1 2020.