The Segment Split Arrives Right as the Two Businesses Diverge
Last quarter's Q1 2020 post noted that Square was still reporting as a single operating segment, with a promise to split into Seller and Cash App segments "in subsequent quarters of 2020." That split shows up for the first time in this filing, and the timing could not be more revealing: Cash App segment revenue grew 361% year-over-year to $1.20 billion, while Seller segment revenue fell 17% to $723.4 million. Two businesses reported under one roof, moving in opposite directions in the same ninety days.
The gap is a direct read on how COVID-19 hit Square's two customer bases differently. Sellers - the small restaurants, salons, and retail shops that make up Square's original business - were largely still closed or capacity-restricted through April and into May under shelter-in-place orders; GPV» for the full quarter fell 15% to $22.8 billion, an actual GPV decline, not just decelerating growth. Cash App customers, by contrast, are individuals - and individuals kept receiving and spending money through Cash App even as the businesses they might have worked for stayed closed, helped along by the federal government's stimulus payments landing directly in millions of Cash App accounts starting in April. The filing itself credits both effects: growth in new customers and, again, a big chunk of bitcoin revenue, which grew from $125.1 million to $875.5 million within the Cash App segment alone.
Segment gross profit tells the more important version of this story than segment revenue does: Seller still generated more gross profit than Cash App this quarter ($315.7 million vs. $281.1 million) despite Cash App's much larger headline revenue number - because so much of Cash App's revenue is the same low-margin bitcoin pass-through flagged last quarter. Segment revenue alone would make Cash App look like the bigger, more important business; segment gross profit shows Seller is still doing more of the actual economic work, even in a quarter where its top line shrank.
The Prescription
Square should double down on getting stimulus and unemployment-benefit recipients onto Cash App via direct deposit - this quarter's Cash App growth shows the product can capture government-to-consumer payment flows at scale during exactly the kind of downturn that hurts the Seller business, making it a genuine counter-cyclical hedge within the same company, not just a second growth engine.
What it should stop doing: let the segment-revenue headline (Cash App "$1.2 billion, +361%") stand without immediately pairing it with segment gross profit in the same breath. This quarter's own numbers show Seller still out-earning Cash App on gross profit despite a much smaller headline revenue figure - a reader skimming only the segment-revenue table would draw exactly the wrong conclusion about which business is actually bigger economically.
Key Financial Metrics
Q2 2020 vs. Q2 2019 - consolidated, reported in USD
| Metric | Q2 2020 | Q2 2019 | YoY |
|---|---|---|---|
| Total Net Revenue | $1,923.6M | $1,174.2M | ⚠️ +64% (Cash App bitcoin pass-through is most of the increase - see above) |
| Adjusted EBITDA | $97.9M | $105.3M | ⚠️ -7% |
| Operating Loss | $(23.1)M | $(0.8)M | ⚠️ loss widened |
| Net Loss | $(11.5)M | $(6.7)M | ⚠️ loss widened |
| Free Cash Flow» | $(303.6)M | n/a - not separately disclosed for Q2 2019 in this filing | ⚠️ swung negative on customer funds/settlements timing (see below) |
| Cash and Cash Equivalents (period-end) | $1,972.8M | n/a - not disclosed for Jun 2019 in this filing | — |
| Balance sheet metric | Jun 2020 | Dec 2019 | Change |
|---|---|---|---|
| Total Assets | $7,812.3M | $4,551.3M | ✅ +71.7% (mostly customer funds tied to Cash App growth) |
| Total Liabilities | $5,886.0M | $2,836.2M | ⚠️ +107.5% |
| Total Stockholders' Equity | $1,926.3M | $1,715.1M | ✅ +12.3% |
Free Cash Flow this quarter is derived from six-month operating cash flow of $(151.8) million (less $121.3 million reported for Q1, implying roughly $(273.1) million standalone for Q2) against $30.4 million of standalone Q2 capital expenditures. The negative swing isn't an earnings-quality problem - it's mechanical: the six-month cash-flow statement shows a $953.4 million cash outflow tied to growth in customer funds (money Cash App customers are holding on the platform) and large swings in loans held for sale and settlements receivable, all of which move with GPV and Cash App balances rather than reflecting the underlying operating economics. Total assets and liabilities both roughly doubled year-over-year for the same reason - Cash App's growing customer balances show up gross on both sides of the balance sheet.
Cash App segment revenue of $1.2 billion (+361% YoY) looks like the headline story this quarter, but Seller still generated more segment gross profit ($315.7M vs. $281.1M) even after a 17% revenue decline - the two segments are diverging in growth rate, not (yet) in which one actually earns Square more money.
Segment Comparison: Cash App vs. Seller
Square now reports two segments: Cash App (peer-to-peer payments, Cash Card, bitcoin and stock investing, direct deposit) and Seller (point-of-sale hardware and software, payments processing, Square Capital lending, Instant Transfers). Q2 2019's segment figures have been recast on the same basis for comparison (excluding the divested Caviar business).
| Metric | Cash App Q2 2020 | Cash App Q2 2019 | YoY | Seller Q2 2020 | Seller Q2 2019 | YoY |
|---|---|---|---|---|---|---|
| Segment Revenue | $1,200.3M | $260.5M | ✅ +361% | $723.4M | $870.4M | ⚠️ -17% |
| Segment Gross Profit | $281.1M | $105.3M | ✅ +167% | $315.7M | $347.2M | ⚠️ -9% |
| Implied Gross Margin | 23.4% | 40.4% | ⚠️ -17pp (bitcoin pass-through dilutes margin) | 43.6% | 39.9% | ✅ +4pp |
Cash App
Cash App's revenue growth is real but heavily bitcoin-weighted - excluding the $875.5 million of bitcoin revenue, the segment's remaining revenue (transaction-based plus subscription-and-services) was still up meaningfully year-over-year on new-customer growth and stimulus-driven deposit activity, but nowhere near the headline 361%. Cash App's implied gross margin fell 17 points because bitcoin revenue is booked at a near-zero markup, which drags the blended segment margin down even as the underlying financial-services business (subscriptions, Cash Card interchange) keeps improving.
Seller
Seller's 17% revenue decline is the direct COVID-19 print: GPV fell as shelter-in-place orders kept card-present sellers closed for most of April and part of May, with a gradual recovery beginning mid-April as some states eased restrictions and sellers shifted toward card-not-present transactions (online ordering, delivery, curbside pickup). Seller's gross margin actually improved four points year-over-year despite the revenue decline - a sign that the mix shift toward higher-margin subscription and services revenue (which grew even as transaction revenue fell) is real, not just a byproduct of lower GPV.
Key Operational Metrics
Q2 2020 vs. Q2 2019
| Metric | Q2 2020 | Q2 2019 | YoY |
|---|---|---|---|
| GPV | $22,801M | $26,785M | ⚠️ -15% |
| Bitcoin Revenue | $875.5M | $125.1M | ⚠️ +600%, near-zero margin - see above |
| PPP Loans Facilitated Through Square Capital | Program active this quarter (PPPLF advances $447.8M outstanding at quarter-end) | n/a - program didn't exist | — |
Stock Price: A Doubling Off the March Low
Square closed Q1 2020 at $52.38 and closed this quarter at $104.94 - a 100% gain in three months, more than recovering everything lost in the March COVID crash and setting a new all-time high along the way. Over the trailing two years (July 2018 through June 2020), the stock ranged from roughly $31 (the March 2020 trough) to just over $105 (this quarter's close) - a swing that clears the threshold for a dedicated section by a wide margin. The rally tracks a broader market-wide re-rating of "stay-at-home" and fintech names through Q2 2020, plus company-specific enthusiasm around Cash App's stimulus-driven growth and retail interest in bitcoin exposure through the platform - both plausible drivers given what this filing actually shows, though the filing itself doesn't attribute the stock move to any specific cause.
Beyond the Usual
The San Francisco Tax Dispute Flagged Last Quarter Is Now Fully Settled
The Gross Receipts Tax and Payroll Expense Tax dispute with the City and County of San Francisco - which last quarter carried an estimated exposure of up to $66 million - reached a final settlement in July 2020. The filing states plainly that the settlement "was not material to the consolidated financial statements" for the period. A multi-year dispute that once carried a nine-figure-adjacent worst case closed out with no material financial impact.
The Company Is Now a PPP Lender to Its Own Customers
Square Capital LLC was approved on June 2, 2020 to borrow under the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF), pledging PPP loans it originated for its own seller customers as collateral for non-recourse Federal Reserve advances - $447.8 million of PPPLF advances were outstanding at quarter-end, secured by an equal principal amount of PPP loans. Square effectively became a conduit for federal small-business relief funding to its own seller base during the same quarter that base's GPV was falling - a business-model wrinkle that didn't exist before this pandemic and that turns Square Capital into a direct participant in COVID-era fiscal policy, not just a private lender.
A Related-Party Lease Finally Landed on the Balance Sheet
The 15.5-year St. Louis office lease with an affiliate of co-founder Jim McKelvey, flagged as not-yet-recognized last quarter, commenced this quarter (varying by floor). Square has not yet disclosed the exact right-of-use asset and lease liability recorded for it as of this specific quarter-end, but the arrangement is now an active, on-balance-sheet related-party obligation rather than a disclosed-but-unrecognized future commitment.
Target Valuation Range
~8.6x EV/TTM Revenue, ~$105 per share at quarter-end. The stock's doubling this quarter pushed the revenue multiple up sharply from Q1's ~4.9x (see the Q1 2020 post) even as trailing-twelve-month revenue growth, while still strong, didn't come close to doubling - a clear case of multiple expansion running ahead of the fundamentals it's nominally pricing.
| Market cap → enterprise value | Q2 2020 (period-end) |
|---|---|
| Share price (period-end) | $104.94 |
| Shares outstanding (Class A + B, ~Jul 2020) | ~443.5 million |
| Market capitalization | ~$46.6 billion |
| Total liabilities | $5.89 billion |
| Less: cash and cash equivalents | $1.97 billion |
| Enterprise value | ~$50.5 billion |
| Peer-multiple sanity check | TTM ending Q1 2020 | TTM ending Q2 2020 | Change |
|---|---|---|---|
| Enterprise Value | ~$25.2 billion | ~$50.5 billion | ⚠️ +100% |
| TTM Revenue | ~$5.14 billion | ~$5.88 billion | ✅ +14% |
| EV/TTM Revenue | ~4.9x | ~8.6x | ⚠️ nearly doubled |
The gap between EV growth (+100%) and TTM revenue growth (+14%) over the same three months is the single most important number in this valuation section: the market didn't reprice Square because the trailing fundamentals changed nearly that much, it reprised the stock's growth expectations for Cash App going forward. A full DCF still isn't attempted - Square remains GAAP loss-making, and with only two quarters of segment history to work from, there isn't yet a reliable multi-year growth or margin trajectory to build one on for either segment separately.
Square, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, filed with the SEC.