…what are you using to track revenues now that Adjusted Revenues will no longer be reported? Net Revenues seems like the best option, but it really skews margins. That’s probably close enough for tracking purposes. However, I’m wondering if there’s something that makes more sense.
Adjusted Revenue = Total Net Revenue - Transaction-based costs - Bitcoin costs
So in 2019Q4, Adjusted Revenue is $619.8, 34% growth compared to 2018Q4. However, 2019Q4 does not have Caviar sales any more. I remember reading somewhere in their shareholder letter if we compare apples to apples, it’s actually a 46% growth, which is quite amazing to me.
Carviar is lower growth low margin business. I applaud the management for selling it, making the acquisition a profitable one and allowing them to focus on higher growth areas. A lot of people don’t like Jack Dorsey, but I feel he is a close second smartest CEO to Elon Musk, with more stable personality.
Its Cash app revenue grew by 147% in the latest quarter and its gross profit is now 27% of overall gross profit. I use it personally, and can see how it will eat into the traditional banking business.
SQ is guiding 40% growth for 2020. Considering it’s likely that they beat the guidance, it’s once again becoming a higher conviction stock for me, notwithstanding the unknown short term effect of the coronavirus situation.
Jack Dorsey bets big on bitcoin. Bitcoin transaction contributed a large portion of the CASH APP rev and growth. It may pay off big in short term, but in the mean time it also presents a big long term risk, if Bitcion fades away in the future. What do you think?
Darryn Pollock published an article on Forbes:
“Jack Dorsey’s payments company Square has now recorded Bitcoin revenue of $178 million between October first and the end of 2019, with gross profits of $3 million. This represents an increase of 50 percent over the prior two quarters.
Moreover, the non_bitcoin related revenue for Square over the same period was $183 million, a shade over 50 percent. This paints an impressive picture of how much Bitcoin has bolstered Square’s business, as well as how popular the cryptocurrency has become on the Fintech payment platform.
Square reported a year-end profit of $8 million on $516 million in yearly Bitcoin revenue.”
Here is the link:
Just to add my perspective of bitcoin to SQ. My opinion is that bitcoin adds an insignificant amount to the bottom line. What it does do is drive more people to CashApp and the SQ ecosystem, and I think that’s Dorsey’s goal with it. The fact that the bitcoin segment is also profitable is a bonus, as it’s essentially a positive customer acquiring cost centre.
Cash App gross profit was 144 million this quarter. So the non-bitcoin segment of Cash App generates 98% gross profit of this part of SQ. If bitcoin were to disappear, I think SQ would be fine.
From the latest 8K:
We deduct bitcoin revenue because our role is to facilitate customers’ access to bitcoin. When customers buy bitcoin through Cash App, we only apply a small margin to the market cost of bitcoin, which tends to be volatile and outside our control. Therefore, we believe deducting bitcoin revenue better reflects the economic benefits as well as our performance from these transactions.
I agree and think Dorsey is quite smart with jumping on trends to persuade more people to use Cash App. Like any marketing/sales technique, getting your foot in the door, or your app downloaded on people’s smartphone, is a significant step in the right direction.
Thank you for the additional info. It appears to be a good entry point for SQ from the chart too. I opened a small position this morning, in my wife’s IRA account.
I’ve been considering the same question about how to view Square’s revenue.
I think I’m going to adjust for bitcoin, because it has the potential to distort revenue. If bitcoin’s price shoots way up, revenue growth will be positively impacted. Conversely, if bitcoin collapses, revenue growth would be negatively impacted. But I don’t think bitcoin prices reflect the overall health of this company.
For those who may want it, here is info about the accounting change. It was part of Q3 earnings: https://s21.q4cdn.com/114365585/files/doc_financials/2019/Q3…)
I’m not a big fan of a bunch of adjustments, but in this case I think it’s helpful for me to better understand how the company is doing. Hope those thoughts are useful.
PS: This is not to suggest that I think bitcoin is unimportant to Square. It can attract users to Cash App; and if Square makes a little money on those transactions, that is fine with me, because I’m long Square. (See all my holdings here: https://discussion.fool.com/profile/TMFMikeStrain/info.aspx)
I have been tracking SQ for years and been in and out… back in with small position in last couple of weeks.
However, I always used GAAP revenue, whatever they call it now.
As long as you can see gross margin as % remains stable, I am happy.
They have done great job riding bitcoin and making it more and ore profitable…
most importantly, i was impressed with their guidance for next year maintaining growth even after ~5% of revenue goes away with Caviar.
I added to SQ today. I suggest switching to boring old EPS with this company now. That means valuing them on a P/E basis, which might be a little hard to get used to since we very rarely use it here anymore. But the P/E currently is about 97. (Just divide the share price by SQ’s 80 cents TTM EPS.)
The good news is that EPS should be steadily (but impressively) flying upward over the next several quarters. EPS estimate for next quarter (at the high end) is 18 cents. That compares to 11 cents YoY, so 64% growth. Nice.
Even if that continues all year, don’t expect SQ’s share price to go up 64%. The PE will come down from 97.
Want my wild guess? This time next year the share price is around $120 and the PE is around 60 - 70.