Investors Unhappy with Square’s Meagre $200,000 Revenue from Bitcoin Trading
Digital payments processing company Square announced that it sold total bitcoin worth $34.1 million in the first quarter of 2018. The announcement was made May 3, 2018, by the company during the filing of its quarterly results, as is mandatory by the Securities and Exchange Commission (SEC).
Analysts, however, are far from happy with Square’s performance. Square, founded in 2009, is led by the co-founder of Twitter, Jack Dorsey, as its CEO. While the company reported a net sale of bitcoin worth $34.1 million, it also spent over $33.9 million to facilitate bitcoin trading through its mobile payments app.
The report clearly highlights that the company made a meager revenue of $200,000 from its bitcoin trading operation. Chief Financial Officer of Square, Sarah Friar, addressed the wafer-thin revenue by saying, “It’s effectively a margin that we’re putting in place to give us some cushion for when a customer makes purchases, and we have to go into the market to buy the bitcoin.” She added that this was necessary to prevent any price fluctuations between USD and BTC.
In the previous quarter, bitcoin trading contributed only a minimal percentage of the company’s total revenue which amounted to around $699 million. Investors were, however, optimistic of improved earnings which would give a boost to future investment sentiment across Wall Street.
BTIG Analyst Mark Palmer said:
“In as much as Square’s stock performance in recent months has been bolstered by enthusiasm surrounding the bitcoin effort, the actual financial impact of the cryptocurrency on the company’s results provided a window into how little such transactions may move the needle for the company.”
Stock Tumbles Six Percent after Results
Shares of Square Financials took a six percent tumble in the extended trading hours after the report was released on May 3. Despite the company meeting earnings per share (EPS) expectations and beating revenue expectations, its guidance fell short of analyst expectations.
Profit at Cryptocurrency Exchanges
Cryptocurrency exchanges have benefitted from a high interest shown by masses in owning bitcoin and other cryptocurrencies. Investors generally view cryptocurrencies as an investment even though most digital tokens do not have any utility yet.
Bloomberg reported that the top cryptocurrency exchanges make as much as $3 million from trading fees every day. Binance and Upbit have projected daily revenues upwards of $3 million while Huobi and Bitrex make more than $2 million daily. It is also no surprise that Asia-based exchanges are at the top of the list as early miners took advantage of both, cheap and abundant electricity available in the region as well as the favorable cryptocurrency environments in South Korea, Japan, and China.
Since then, however, South Korea and China have both tightened financial regulations on bitcoin and cryptocurrency exchanges while the latter has imposed a ban on cryptocurrency trading and other activities altogether.
Speaking about the revenues of major cryptocurrency exchanges, Gil Luria, equity analyst at D.A. Davidson and Co. said:
“The exchanges and transaction processors are the biggest winners in the space because they’re allowing people to transact and participate in this burgeoning sector. There’s a big business there and it would not surprise me if they’re making hundreds of millions of dollars in revenue and possibly even billions a year.”