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.
- 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 Q3 2020 and is growing fast.
- The Seller segment generated the majority of gross profit in Q3 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.
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.
The third quarter of 2020 has been another profitable period for Square, but only after posting net losses in the first two quarters of the year. Square posted net income of $36.5 million in Q3 2020, which ended September 30, 2020. Net income grew 24.2% compared to the year-ago quarter. Total revenue for the quarter was $3.0 billion, up 139.6% compared to the same three-month period a year ago. Gross profit rose 58.9% to $794.5 million.
Bitcoin revenue, which grew 1,001.8% compared to the year-ago quarter, generated the majority, or 54%, 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 30% of total revenue, while subscription and services-based revenue and hardware revenue comprised 15% 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.
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 Q3 2020, Cash App generated $385.1 million in gross profit, up 211.9% from the same quarter a year ago. The segment's gross profit accounted for about 48% of Square's total gross profit. Cash App revenue grew 573.7% to $2.1 billion in Q3 2020, accounting for more than 68% of total revenue.
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 $409.3 million in gross profit in Q3 2020, up 12.5% compared to the same-three month period a year ago. The segment accounts for the majority of Square's gross profit, at about 52% of the total. Seller revenue rose 5.1% to $965.3 million, accounting for about 32% 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|
|General Management||✔ (U.S. Only)||✔|
|Employees||✔ (U.S. Only)||✔||✔|
Square, Inc. "Form 10-K for the fiscal year ended December 31, 2019," Page 5. Accessed March 29, 2020.
Square, Inc. "Form 10-K for the fiscal year ended December 31, 2019," Page 45. Accessed March 29, 2020.
Square Inc. "Q1 2020 Shareholder Letter." Accessed Sep. 15, 2020.
Square Inc. "Q2 2020 Shareholder Letter." Accessed Sep. 15, 2020.
Square Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Page 5. Accessed Nov. 11, 2020.
Square Inc. "Form 10-K for the fiscal year ended December 31, 2019," Page 51. Accessed Sep. 15, 2020.
Square Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 36. Accessed Sep. 15, 2020.
Square Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Page 37. Accessed Nov. 11, 2020.
Square Inc. "Square Payroll Brings Faster, More Flexible Money Movement With Launch of On-Demand Pay and Instant Payments." Accessed Sep. 15, 2020.