Square gets an earnings boost from Caviar sale, Cash App

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The growth and monetization of Square’s Cash App boosted the company's quarterly earnings, along with the sale of its food delivery unit Caviar.

Active monthly Cash App users stood at 24 million consumers in December 2019, up 60% from 15 million in December 2018 and up over 240% from the 7 million user base in December 2017. The annual revenue generated from active monthly Cash App users has more than doubled in the last two years, going from roughly $15 per user in 2017 to $30 per use in 2019, excluding bitcoin revenue.

The sale of Caviar, which concluded during the fourth quarter of 2019, resulted in a gain on sale of $373 million.

“Cash App continues to exceed our expectations, consistently found in the top 15 free apps in the App Store and driving to 24 million monthly active customers as of December 2019,”said Jack Dorsey, CEO of Square and Twitter, during Square's earnings call on Wednesday.

“The Cash Card is also at scale, being used by over 20% of our monthly active [Cash App] customers," Dorsey said. "The peer-to-peer transfers network continues to be our best acquisition channel, as each person with an account brings in more folks just by sending and receiving money.”

Square reported that new customers to the Cash App go on to discover add-on products related to the Cash App such as bitcoin trading, its Cash Card, Boost (its discount and cash back feature) and fractional investing, all of which gives Square a foundation to build on in its fiscal 2020.

Square net revenue was $1.31 billion in the fourth quarter of 2019 ending December 31t, up over 40% from $932.5 million the same quarter one year earlier. Net income for the fourth quarter of 2019 was $390.9 million, up from a net loss of $28.2 million in the same quarter one year earlier. The net income for the quarter was boosted by recognizing the $373 million gain from the sale of its food delivery business Caviar. Excluding the one-time impact of the Caviar sale, net income was $17 million for the quarter. Square announced the sale of Caviar to DoorDash in August for $410 million.

“Cash App’s strong sustained growth has led to a mix shift in our overall company gross profit with Cash [App] accounting for 27% of total gross profit in the fourth quarter, compared to just 19% a year ago,” said Amrita Ahuja, chief financial officer at Square.

The performance of Cash App and its associated products serves as an illustration that digital P2P payment apps can make money, despite the challenges that competitors such as PayPal's Venmo have struggled with achieving monetization.

In April 2019 Venmo revealed that it had over 40 million active users, almost twice that of Square’s Cash App. Then in October Dan Schulman, CEO at PayPal, reported “We ended Q3 with Venmo just shy of a $400 million annual revenue run rate.”

In contrast, Ahuja reported that Cash App is currently running at an annualized $700 million run rate, excluding bitcoin revenue with just half the number of active users of rival Venmo.

In the fourth quarter of 2019, Cash App generated $361 million in revenue that was almost evenly split between bitcoin sales at $178 million and subscription and transactional services at $183 million. The gross profit for Cash App in the quarter was mostly driven by subscription and transactional services, delivering $141 million, while bitcoin delivered just $3 million for a total Cash App gross profit of $144 million.

For the full year of 2019, Cash App delivered $1.1 billion in revenue split almost 50/50 between subscriptions and bitcoin, while 98% of Cash App’s $458 million gross profit came from subscriptions. Bitcoin delivered just $8 million in gross profit for 2019, compared to $449 million for subscriptions and transactional services.

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