Square revenue rises even as coronavirus hurts seller volume
Square's gross payment volume tumbled by 15% year-over-year because of COVID-19’s impact, but revenue jumped as online selling rose, Cash App doubled in users and Square enabled almost $900 million in PPP loans.
GPV from Square’s sellers fell to $22.8 billion in the second quarter of 2020, down from $26.8 billion in the second quarter of 2019 as COVID-19 impacted Square’s small-business customer base. This is an improvement from April, when GPV fell by 50% as lockdowns forced many businesses to close.
But the strength of Square's online merchants and its Cash App helped bring revenue to $1.92 billion in the second quarter, up 64% from a year earlier. Gross profit was also higher coming in at $597 million, up 28% from the same quarter one year earlier. Meanwhile, Square reported a net loss of $11 million for the quarter, versus a $7 million loss in the second quarter of 2019.
“COVID-19 continues to be top of mind, it continues to impact our small business customers,” Jack Dorsey, co-founder and CEO of Square, said Wednesday in a conference call. “In June, Cash App had more than 30 million users and we saw an increase in people using direct deposit.”
A year earlier, Cash App had 15 million monthly users. Square’s Cash Card also reported 7 million active monthly users, double the number from the same month a year ago. In the second quarter, users who had direct deposit attached to their Cash Card spent two to three times more than other Cash Card active users.
Square reported that there were significant gains to its Cash App ecosystem, which resulted in gross profit growth of 167% in the quarter from a year earlier. The Cash Card, which is attached to the Cash App, reported nearly 50% growth in spend compared with the first quarter driven by both the number of Cash Card actives and the spend per active.
“Our customers are increasingly using Cash Card as a spending tool,” Amrita Ahuja, Square's chief financial officer, said on the call. “Today we sit at one in four customers with the Cash App having a Cash Card.”
Executives noted that in the quarter Square experienced an increase in the number of products adopted by Cash App customers within the first few months of activation, including direct deposit, Cash Card, investing and bitcoin. It was noted that many of the direct deposit customers included those receiving government stimulus funds and unemployment benefits, which in turn fueled spending. The loss of the enhanced federal unemployment benefits and no additional stimulus funds could reduce Cash Card spending in the next few quarters.
Ahuja noted that the addressable market for the Cash App is at least 100 million consumers in the U.S. Square would like to expand the Cash App and Cash Card to other countries in the future, Dorsey added.
The growth in Cash App users rivals the rapid growth of Venmo, which recently reported 60 million users in PayPal’s latest earnings call which set numerous records since its IPO. However, that still pales in comparison to an estimated 100 million users having access to Zelle through their mobile banking app (see chart for details).
On the Seller ecosystem, Dorsey noted that one in three sellers new to Square were completely new to online selling. Additionally, executives noted that the online channel GPV was up by 50% in the quarter from ae year earlier and that online sales made up 25% of Square total GPV for the quarter. This represented more than double the GPV share online sales held in the second quarter of 2018.
Square released its earnings results on Tuesday evening, a full day ahead of schedule, and held its earnings presentation before the stock market opening on Wednesday because Bloomberg News leaked the results, according to CNBC. Jack Dorsey stated in the earnings call that Square is investigating who leaked the information and that the company will take steps to make sure it doesn’t happen again.
Square's GPV mix in the second quarter was still heavily biased toward very small businesses, with 48% of volume coming from companies with an annualized GPV of less than $125,000, up from 46% in the same quarter of 2019. The mid-sized businesses, with an annualized GPV of between $125,000 and $500,000, accounted for 27% of total GPV for the quarter, down from 28% in the second quarter of 2019. Larger businesses, with more than $500,000 in annualized GPV, represented 25% of the quarter’s total GPV, down from 26% a year ago.
In the second quarter, Square Capital facilitated approximately $873 million in Paycheck Protection Program loans to over 80,000 small businesses. The average PPP loan facilitated by Square Capital was $11,000. Square reported that its loans were a tenth of the average SBA PPP loans during the second phase of the PPP program.
Ahuja noted that the PPP loan volume represented 40% of 2019 Capital loans conducted in a six week period. Despite the high-level of volume, profitability on these loans was less as the SBA had capped the fees to 1%.