Square says bitcoin demand slowed in third quarter but picked back up in October; earnings ding stock

Square Inc. reported lower-than-expected revenue for the third quarter as less volatile pricing for bitcoin impacted demand, though the company’s chief financial officer noted “strength” in volume during October.

The company posted a break-even third quarter, after earnings $37 million, or 7 cents a share, in the year-earlier quarter. On an adjusted basis, Square
SQ,
-1.99%

earned 37 cents a share, up from 34 cents a share a year earlier, while analysts tracked by FactSet were expecting 38 cents a share. The fintech company grew revenue to $3.84 billion from $3.03 billion, while analysts had been modeling $4.39 billion.

Shares fell more than 4% in after-hours trading following the release of the report.

Square’s revenue total for the latest quarter consisted of $1.30 billion in transaction-based revenue, $695 million in subscription revenue, $37.3 million in hardware revenue, and $1.82 billion in bitcoin revenue. Analysts tracked by FactSet were expecting $2.6 billion in bitcoin revenue.

Bitcoin
BTCUSD,
-0.26%

is a relatively low-margin business for Square, and the company incurred $1.77 billion in bitcoin costs during the quarter.

“Bitcoin revenue and gross profit benefited from year-over-year increases in the price of bitcoin and number of bitcoin actives,” the company noted in its shareholder letter, though bitcoin revenue and gross profit both declined on a sequential basis, which Square largely attributed to “relative stability in the price of bitcoin.”

Chief Financial Officer Amrita Ahuja noted on a call with reporters that as bitcoin prices increased in October, the company “saw strength” in demand.

The company’s total gross profit for the third quarter came in at $1.13 billion, up from $794 million a year earlier. Analysts had been expecting $1.15 billion. Speaking on the call with reporters, Ahuja argued for the importance of the gross-profit metric as an indicator of Square’s performance.

During the third quarter, Square saw a lower portion of transactions take place through debit cards, while average transaction size also fell on a year-over-year basis. Despite the decreases, Square noted in its shareholder letter that “these trends remained elevated relative to historical periods partly as a result of changes to consumer behaviors due to COVID-19 and government disbursements, which may not continue in future quarters.”

Square saw gross payment volume of $45.43 billion, up from $31.73 billion a year earlier. The FactSet consensus was for $45.61 billion.

Square expects seller GPV to be up 42% on a year-over-year basis during October.

Shares of Square have declined about 7% over the past three months as the S&P 500
SPX,
+0.42%

has risen roughly 6%.