The price of Bitcoin (CRYPTO:BTC) recently soared past $46,000 after Tesla invested $1.5 billion in the cryptocurrency and said it would soon start accepting it for payments. It might be tempting to chase that rally, but investors should realize Bitcoin is still a highly speculative investment…
Square, which provides online payment services for individuals and businesses, added Bitcoin trading to its Cash App in early 2018. It buys Bitcoin and sells it to Cash users for a slim profit, but doesn’t charge any additional transaction fees.
Square’s Bitcoin revenue surged 731% year-over-year to $2.82 billion, or 44% of its top line, in the first nine months of 2020. Those trades generated a gross profit of $56 million, up from $5 million a year ago, and accounted for 3% of Square’s total gross profit.
That surging interest in Bitcoin benefited Square in three ways. First, it offset a slowdown in its seller-based transaction business, which struggled as smaller businesses shut down throughout the pandemic.
Second, it elevated the profile of its Cash App, which surpassed 30 million active users last June. Lastly, it complemented the Cash App’s growing ecosystem of fintech services, which includes mobile deposits, free stock trades, and upcoming tax preparation services from Credit Karma.
Analysts expect Square’s revenue to roughly double in fiscal 2020, but for a higher mix of lower-margin Bitcoin trades to reduce its adjusted earnings by 5%.
But next year, they expect Square’s revenue and earnings to rise 39% and 51%, respectively, as the pandemic passes and its higher-margin transaction revenue rises again. Square’s stock initially seems expensive at over 200 times forward earnings, but it only trades at about eight times next year sales, which makes it cheaper than many other high-growth tech stocks.
Investors who think Square is too hot to handle should take a closer look at PayPal, its larger rival in online payments.
PayPal previously shunned Bitcoin, but it started allowing users to buy, hold, and sell Bitcoin and other cryptocurrencies in late 2020. It also allowed its 29 million merchants to start accepting cryptocurrency payments.
PayPal doesn’t generate any…
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