Square Might Have a Bitcoin Problem

On Thursday, the fintech company – best known for its merchant checkout system and its digital wallet Cash App, which allows person-to-person payments, stock investing and Bitcoin Trading – reported lower-than-expected revenue for the quarter ended September, primarily due to disappointing results cryptocurrency Business. The business, which allows users to buy and sell bitcoin through the app, generating fees for Square in the process, had $1.82 billion in sales, up 11% from a year earlier, but reported by Bloomberg. That was well below the surveyed analysts’ average estimate of $2.47 billion.

It is clear that Square’s cryptocurrency business is an area of ​​great uncertainty. Let’s be honest. Bitcoin is barely used today as a currency to spend on things. Instead, it is primarily a vehicle for financial speculation. So it’s a problem that the company’s bitcoin trading revenue faltered at a time when the most widely traded cryptocurrency was hovering near its all-time highs, having climbed more than four times in the past 12 months.

Even with the decline, the company’s bitcoin revenue still accounted for nearly half of Square’s total of $3.84 billion for the third quarter. That figure was up 27% from the previous year, and well below the average estimate of $4.51 billion. Square shares fell 5% following the report.

Although not a significant driver of profits today, there is no doubt that bitcoin trading has played a large role in the user development of the Cash App and engagement for other services. If the crypto trading fever continues, it will significantly affect Square’s bottom line.

Square’s other businesses also face challenges next year. The company’s products flourished during the pandemic as an easy-to-use Internet alternative to in-person banking and financial services. But several tailwinds such as government stimulus payments and unemployment benefits that ended in September were ending use.

That’s the result of CEO Jack Dorsey’s $29 billion bet to buy now, pay later firm Afterpay Ltd. Square plans to close the deal early next year and integrate the service — which will help consumers. gives the ability to pay for the business. In four interest-free installments – in your payment app and checkout service for physical stores. The Square-Afterpay combination doesn’t look like an automatic success. Firstly, there is tremendous competition in this area. Buy Now, Pay Later Like Affirm Holdings Inc. – which recently acquired Amazon.com Inc. Have partnered with – and are winning deals with Klarna merchants. With half of Afterpay’s business concentrated in its home geography of Australia and New Zealand, there is also no guarantee that it will become a leader in Western markets. and large companies such as Apple Inc. and PayPal Holdings plan to compete in the buy-now, pay-after market and offer better deals, reducing industry profitability.

In the end, the biggest unknown is what happens when the economy slows down. Square could face major credit losses if consumers are not able to pay their commitments. With cryptocurrency uncertainty from less excitement and the increased risks of consolidating large-scale acquisitions, Square’s future now looks more complicated.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron’s, following an earlier career as an equity analyst.

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