Square generates revenue from bitcoin when users of its Cash App buy bitcoin to be transferred to their account. That bitcoin is bought from brokers or from other dealers while Square charges a small margin.
In the six months to June 30, 2020, Square generated $6.235 billion of bitcoin, revenue, almost two-thirds of its total sales for the period.
That revenue surge lifted Square’s share price as it negotiated to buy Afterpay while its target’s share price was pressured by news that Apple was entering the instalments payments market.
Stock sold off
However, a slowdown in bitcoin transactions as a result of a more stable price weighed on Square’s third-quarter revenue, which missed analysts expectations, prompting a sell-off in the stock.
Overall, reported revenue of $US3.84 billion were lower than analyst forecasts of $4.87 billion. Shares in Afterpay, which will convert to a set ratio of Square shares upon completion of the merger, slid 5.5 per cent on Friday to $117.50.
Square meanwhile slid 4 per cent to $US237.40 in Friday’s US trading session. The stock is 35 per cent higher for the year to date but is about 18 per cent lower than its peak of $US289.23 reached in the week of the Afterpay deal.
Revenue from bitcoin was $US1.81 billion during the third quarter while gross profit was $US42 million, or just 2 per cent of bitcoin revenue. Excluding bitcoin, Square reported net revenue of $US2.05 billion.
The company said the fair value of its investment in bitcoin was $US352 million based on market observable prices.
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