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Slowing bitcoin revenue drags down Square earnings

Payment transaction provider posts revenue increase but misses EPS expectations

Square released its Q3 earnings on Thursday afternoon and is also moving closer to completing its acquisition of Afterpay, receiving shareholder approval to issue Class A common stock to Afterpay shareholders as part of the $29 billion transaction. (Photo: Square)

As third-quarter earnings results have poured in for major online retailers, investors have been left in a state of confusion. Amazon, Wayfair and Shopify all posted results that were below investors’ expectations. (NASDAQ:AMZN), Wayfair (NYSE: W) and Shopify (NYSE: SHOP) represent only one side of the equation, though. Fintech firms underpin the omnichannel payment sector, and Square is the first major company to report its quarterly results.

Like the e-tailers, Square (NYSE: SQ) disappointed analysts, reporting a total gross profit of $1.13 billion, up 43% year-over-year, on revenue of $3.84 billion in the third quarter. Excluding its bitcoin investments, total net revenue was $2.03 billion in Q3, up 45% year-over-year. Adjusted net earnings per share was 37 cents on a diluted basis. Adjusted EBITDA was $233 million in the quarter.

A FactSet poll of analysts forecast Q3 revenue at $4.39 billion and adjusted EPS of 38 cents.

Bitcoin revenue was a disappointment, rising just 11% year-over-year to $1.18 billion in the quarter. Bitcoin revenue was $2.72 billion in the prior quarter and had grown 200% year-over-year in Q2.

Square’s Cash App mobile transaction platform was a highlight, though, generating $2.39 billion in revenue and $512 million in gross profit for the quarter. Excluding bitcoin, Cash App revenue was $578 million in the quarter, up 33% year-over-year.

The company also announced it would make its Cash App available to teens ages 13-17 after previously restricting its usage to those over the age of 18.

Read: Square to acquire buy-now, pay-later firm Afterpay in $29B stock transaction

Read: Square benefits from improving economy, Bitcoin investment to post 266% revenue hike

Gross payment volume (GPV) was $45.4 billion in the quarter, with 92% of that generated from the Seller ecosystem.

The company reported its midmarket sellers, which made up 37% of the Seller ecosystem (up from 28% two years ago), saw profit grow twice as fast as its overall Seller business on a two-year compound annual gross rate basis. Seller profits overall were $606 million, up 48% year-over-year, on revenues of $1.39 billion.

Square said that Seller GPV rose 55% year-over-year on situations in which physical cards were used, and 29% when the card was not present, primarily in online channels.

In other business highlights, Square Invoices processed $12 billion in gross payment volume over the past 12 months, up more than two times that of 2019. Transaction-based revenue was $1.3 billion in the third quarter of 2021, up 40% year over year, and transaction-based gross profit was $543 million, up 35% year-over-year. Square Loans saw gross profit grow during the third quarter as the funding program facilitated approximately 83,000 loans totaling $594 million in originations and nearing pre-pandemic quarterly origination levels, the company said.

Square stock is up more than 16% in 2021 and almost 300% since January 2020. According to 24/7 Wall Street, 27 of 38 brokerages have a buy or strong buy rating on Square despite its recent stock rise, and eight have a hold rating.

Also announced on Thursday was that Square shareholders have approved the issuance of Class A common stock to Afterpay shareholders as Square moves closer to completing its $29 billion acquisition of the Australian buy-now, pay-later finance firm.

A hearing is expected to be held on Friday in Australian court. Afterpay (OTC: AFTPY) said on Thursday it still expects the transaction to close.

Click for more articles by Brian Straight.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected].