Summary

• Cash App’s expanding ecosystem and growth can provide a runway for Square to accelerate revenue growth.
• Even with Bitcoin’s massive 74.1% contribution of Cash App revenues, it has a razor-thin 2% gross margin – equal to the service fee.
• Services/subscription revenues contribute a massive ~78% of gross profit, and with a high ~85% gross margin.
• However, high growth in Bitcoin revenues signals more engagement and volume of Bitcoin transactions, which is likely to drive multi-function growth.
• Such multi-function growth provides incrementally more gross profit and drives service revenues higher, due to more monetization outlets.

Although Square’s (SQ) original focus was on merchant services and mobile micro point-of-sale hardware facilitators to drive transaction-based revenue, the company has arguably created a peer-to-peer payment warrior through Cash App, rivaling PayPal’s (PYPL) Venmo. While it’s hard to discount the broad range of merchant and payment management services that Square offers and recovery in merchant-generated revenues after a slump with lockdowns at a cost of SMB closures, Cash App has transformed itself into the current primary ‘value creator’ and driver of revenues. Cash App’s expanding ecosystem and growth can provide a runway for Square to accelerate revenue growth in the wake of recovery on the merchant side.

Cash App’s Rapid Growth​

Cash App has quickly caught up to Venmo, reaching over 30 million monthly active users during Q3, which could have potentially climbed up to 36 to 38 million MAU through Q4. Estimating that daily actives sat around 4 million for Q3 ’19 (suggesting just over 22 million monthly actives on a share of 18%), monthly actives for Q3 at nearly 8 million and 23% share would estimate over 34 million MAU for Q3. Cash App continues to scale and see significant downloads, about 52 million for 2020, placing it at the sixth-most downloaded app in the U.S. over the course of the year.

https://seekingalpha.com/article/4404162-squares-cash-app-transforming-behemot