3 Key Takeaways from Square’s Q4 Earnings Report

Square (NYSE:SQ) released its fourth-quarter earnings report after the market closed on Wednesday. Overall, investors liked the numbers. The stock rose about 7.0% in after-hours trading. So far, the stock had gained nearly 7.0% today at the time of this writing.

Square’s main business is processing payments for businesses and individuals. However, the company provides a range of other financial services as it pursues new revenue opportunities. For example, the company has built a money transfer platform called “Cash App” that lets people send and receive money. Cash App is growing rapidly. The company has continued to add more features to it including a stock investing feature.

Square’s earnings beat the consensus estimates

Square reported revenue of $1.3 billion, which rose 41% YoY (year-over-year). The revenue beat the consensus estimate at $1.2 billion. The company posted an adjusted EPS of $0.23, which rose from $0.14 a year ago and beat the consensus estimate at $0.21.

Square’s fourth-quarter results benefited from adjustments to the transaction fee that it rolled out during the quarter. During the earnings call, the company said that the adjustment helped it boost customer retention.

Square’s transaction revenue rose 25% YoY to $832 million in the fourth quarter and contributed 64% of the total revenue. The subscription and services revenue rose 45% YoY to $281 million. Meanwhile, the hardware revenue increased 23% YoY to $22 million.

Cash App hits 24 million users

Square’s money transfer platform Cash App generated $361 million in revenue, which represented 147% growth YoY. The company’s earnings report showed that Cash App closed 2019 with 24 million users—up from 15 million users at the end of 2018. Cash App does more than just letting people send and receive money.

Notably, Cash App has a bitcoin exchange feature built into it. The feature allows people to buy and sell bitcoin within the app. The Cash App bitcoin exchange service generated $178 million in revenue for Square in the fourth quarter.

The company continues to develop the Cash App platform with the hope of building it into a bigger revenue source. Last year, Square introduced a stock investing service into the platform. Cash App is Square’s answer to PayPal’s (NASDAQ:PYPL) Venmo, which closed 2019 with 52 million users.

Square’s cash reserve hit $2.1 billion

The company closed the fourth quarter with $2.1 billion in cash reserve—up by $300 million from the previous quarter. The improvement in Square’s earnings and the Caviar delivery business sales boosted the cash reserve. The company sold Caviar to DoorDash for $410 million. The price represents a big value appreciation considering that Square purchased the business for $44.3 million in 2014.