Dorsey hints at new crypto acquisitions as Square posts record $1.63B in Bitcoin sales

November 5, 2020.
“We want to put more force behind some of the trends that we’ve seen within our space, such as artificial intelligence and also cryptocurrency, specifically Bitcoin,” Square CEO Jack Dorsey said. (Photo by Dmitry Demidko on Unsplash)

“We want to put more force behind some of the trends that we’ve seen within our space, such as artificial intelligence and also cryptocurrency, specifically Bitcoin,” Square CEO Jack Dorsey said. (Photo by Dmitry Demidko on Unsplash)

Chairman and CEO Jack Dorsey suggested that the fintech may increase its bet on Bitcoin and other cryptocurrencies next year, after its consumer digital wallet platform booked a record $1.63 billion in third-quarter Bitcoin sales.

That’s about 11 times more than the amount of Bitcoin it sold in the previous-year quarter, culminating in a gross profit of $32 million, up 13 times over the same period, the San Francisco-based company revealed Thursday.

The payment services provider plans to “incrementally” ramp up operational expenses by up to $850 million in 2021, Square Chief Financial Officer Amrita Ahuja told analysts on a call Thursday to discuss third-quarter earnings. About 25% of that will be directed toward go-to-market investments in new products and infrastructure, including automation and new infrastructure, she said.

“We definitely have an appetite for acquisitions,” Dorsey, who is also CEO of Twitter, said during the call. “We want to put more force behind some of the trends that we’ve seen within our space, such as artificial intelligence and also cryptocurrency, specifically Bitcoin.”

“We’re constantly looking for great teams or great products that compliment or are adjacent to our key ecosystems in sellers and Cash App. And we want to make sure we’re open to acquisitions not only in the U.S. but also abroad because great companies are being found all around the world,” Dorsey said.

Dorsey’s comment marks the latest in a string of commitments to Bitcoin, which he said will eventually become the “native currency of the internet” and act as an economic equalizer by expanding access to digital assets.

Square purchased more than 4,700 Bitcoins in October totaling $50 million, representing about 1% of its total second-quarter assets. A month earlier, the firm formed the Crypto Open Patent Alliance and invited a number of major crypto-asset developers and other firms in a bid to curb bad-faith patent litigation in the sector.

The fintech posted third-quarter earnings of $37 million Thursday, or $0.08 per share, down from $0.07 per share in the prior-year quarter and up from a loss of $0.03 per share in the second quarter. The company fell short of $0.14 a share in earnings projected by Zacks Equity Research.

Meanwhile, total net revenue hit $3.03 billion, up 140% year over year and roughly 57.8% sequentially, suggesting that Square’s bottom line recovery was largely mitigated by ballooning costs across its consumer and business ecosystems. 

Operating expenses reached $745 million for the quarter, up 59% over the prior-year quarter. This was mostly fueled by a 133% increase in sales and marketing costs to $348 million, as the company ramps up its campaign to boost customer acquisition.

In particular, marketing costs for Square’s Cash App, a popular digital wallet app, grew 217% year over year due to an uptick in peer-to-peer transactions and subsequent rise in transaction losses, Cash Card issuance and advertising for the app, Square said.

This increase helped to drive a 212% year-over-year jump in Cash App’s gross profits to $385 million, comprising roughly half of Square’s business for the quarter. Relatively new products like Cash Card, a free business debit card, enjoyed “faster product adoption” and “strong customer engagement” due to these efforts, with more than 7 million active users as of June, Ahuja said.

Cash App has more than tripled in gross profits from $123 million in the third quarter of 2019, which was likely aided by a broader increase in adoption of digital wallets and other types of financial products, Ahuja said.

“Cash Card has achieved strong adoption at nearly 1 in 4 of our monthly active users … and we think that there is even more that we can do to in terms of servicing Cash Cards and Boost products,” which offer discounts on Cash Card purchases, she said.

Of the projected 2021 expense surge, about half will go to support Square’s sustained media campaign into the new year, Ahuja said. These efforts are expected to reach an estimated 50 million potential clients. 

Square’s business payments solutions side grew about 12% year over year to $409 million in gross profits in the third quarter, which is up around 29% sequentially. The overall gross payment volumes across both wings of the business grew 12.4% year over year to $31.7 billion and 39% from the second quarter.

--Additional reporting by Robert Philpot and Zack Fishman

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