Square Inc. (SQ) is a financial services and online payments company that provides hardware and software tools to help businesses run and grow their operations. Among Square's primary products are: a point-of-sale hardware system; software for payments processing and analytics; Square Card, a free business debit card; and Cash App, a peer-to-peer (P2P) payment service. Square faces a broad array of small and large competitors such as business software companies, payroll processors, payment terminal vendors, and banks. They include PayPal Holdings Inc. (PYPL), Intuit Inc. (INTU), and venture capital startup ShopKeep.

Key Takeaways

  • Square is a financial services and mobile payments company that sells a broad range of products, including point-of-sale hardware and software.
  • Square's Cash App generated the most revenue in Q2 2020 and is growing fast.
  • The Seller segment generated the majority of gross profit in Q2 2020, but its share of the total is declining.
  • Square continues to invest in its Seller and Cash App ecosystems, recently launching two new features that leverage both.

Square's Financials

Since its 2015 initial public offering (IPO), Square has grown rapidly into one of the largest and best-known payment services companies in the U.S. But it only recently achieved profitability. Four years after going public, Square posted its first annual profit in fiscal year (FY) 2019.

So far in 2020, however, Square has posted net losses in the first two quarters.  The company posted a net loss of $11.5 million in Q2 2020, which ended June 30, 2020. On a positive note, total revenue for the quarter was $1.9 billion, up 63.8% compared to the same three-month period a year ago. Gross profit rose 28.1% to $596.8 million. Despite the rise in gross profit, higher operating and interest expenses than in Q2 2019 led to a comparatively bigger net loss in this year's second quarter.

Bitcoin revenue, which grew 599.9% compared to the year-ago quarter, generated the majority, or 46%, of Square's total revenue. Square allows users to buy bitcoin through its Cash App, and bitcoin revenue is dependent on the volatility of bitcoin prices.  Transaction-based revenue comprised about 35% of total revenue, while subscription and services-based revenue and hardware revenue comprised 18% and 1% of the total, respectively.

Square's Business Segments

Effective June 30, 2020, Square changed its operating and reporting segments. Previously, the company reported as a single entity. It now has two reportable segments: Cash App and Seller. Square provides a breakdown of revenue and gross profit for these two segments.

Cash App

The Cash App segment refers to Square's mobile cash application and provides financial tools to users of that app. It includes P2P payments, bitcoin and stock investments, and the Cash Card, which is linked to customer stored balances that can be used to make purchases or withdraw funds from an ATM.

In Q2 2020, Cash App generated $281.1 million in gross profit, up 166.8% from the same quarter a year ago. The segment's gross profit accounted for about 47% of Square's total gross profit. Cash App revenue grew 360.8% to $1.2 billion in Q2 2020, accounting for more than 62% of total revenue.

Seller

The Seller segment includes Square's managed payment services, software solutions, hardware, and financial services offered to sellers, excluding those services that involve Cash App.

The Seller segment generated $315.7 million in gross profit in Q2 2020, down 9.1% compared to the same-three month period a year ago. But despite the decline, the segment still accounts for the majority of Square's gross profit, at about 53% of the total. Seller revenue fell 16.9% to $723.4 million, accounting for about 38% of total revenue.

Square's Recent Developments

In mid-September, Square announced the launch of two new features that will enable Square Payroll employees and employers to manage their cash flow with greater ease and effectiveness. The company said the new features -- On-Demand Pay and Instant Payments -- leverage both the Seller and Cash App ecosystems.

How Square Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Square and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Square releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Square discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Square breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Square Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite
 
       
General Management ✔ (U.S. Only)      
Employees ✔ (U.S. Only)