Profitable Again, But Look at What's Driving It
Square's Form 10-Q for the quarter ended March 31, 2021 shows GAAP net income of $39.0 million - a return to profitability after three straight loss quarters in 2020. Total net revenue came in at $5.06 billion, up 266% year-over-year from $1.38 billion. That headline growth rate is almost entirely a bitcoin story: bitcoin revenue was $3.51 billion of the $5.06 billion total - 69% of everything Square reported this quarter, up from 22% a year earlier. Strip bitcoin out and total net revenue still grew, but the 266% figure a reader sees in a headline bears almost no resemblance to the underlying business.
The subsequent-event bitcoin purchase disclosed at the end of last quarter's 10-K - $170 million, announced February 8, 2021 - is now a live balance-sheet position, and this filing shows exactly how it's performing: the fair value of Square's bitcoin investment was $472.0 million as of March 31, 2021, against a carrying value of just $200.1 million (the $200.1 million reflects the $170 million February purchase plus $50 million purchased back in October 2020, less $19.9 million of impairment losses recognized this quarter when bitcoin's price dipped below the carrying value at some point in the period). Under the indefinite-lived intangible asset accounting rules Square operates under, that $271.9 million of unrealized gain isn't recognized on the income statement or balance sheet - only the downside impairments are - so the $200.1 million book value understates what the position was actually worth by more than double at quarter-end.
The Prescription
Square should keep leaning into what's actually earning it money this quarter - the non-bitcoin Cash App financial-services stack (Cash Card, direct deposit, peer-to-peer) and Seller's recovering subscription mix - since gross profit, not the bitcoin-inflated revenue line, is what will determine whether this quarter's return to GAAP profit holds up. What it should stop doing is letting bitcoin pass-through revenue dominate the headline growth story it tells investors and the market: 69% of this quarter's total revenue came from a business line that Square's own disclosures show contributed only 8% of gross profit, and a company that keeps reporting "266% revenue growth" without immediately contextualizing how much of that is a razor-thin-margin pass-through risks training investors to price the stock off a number that has almost nothing to do with the business's actual earnings power.
Key Financial Metrics
Q1 2021 vs. Q1 2020, consolidated, reported in USD
| Metric | Q1 2021 | Q1 2020 | YoY |
|---|---|---|---|
| Total Net Revenue | $5,057.3M | $1,381.1M | ✅ +266% (bitcoin revenue alone grew 1,047%) |
| Bitcoin Revenue | $3,511.1M | $306.1M | ⚠️ +1,047% (69% of total revenue, up from 22%) |
| Gross Profit | $963.5M | $538.5M | ✅ +79% |
| Operating Income (Loss) | $67.7M | $(90.3)M | ✅ swung to a profit |
| Net Income (Loss) | $39.0M | $(105.9)M | ✅ swung to a profit |
| Adjusted EBITDA» | $236.2M | $9.3M | ✅ +2,432% |
| Free Cash Flow» | $(131.9)M | n/a - not separately disclosed on a comparable basis | — |
| Balance sheet metric | Mar 2021 | Dec 2020 | Change |
|---|---|---|---|
| Cash and Cash Equivalents | $3,022.5M | $3,158.1M | ⚠️ -4.3% |
| Total Assets | $11,348.7M | $9,869.6M | ✅ +15.0% |
| Total Liabilities | $9,034.3M | $7,188.0M | ⚠️ +25.7% |
| Total Stockholders' Equity | $2,314.4M | $2,681.6M | ⚠️ -13.7% |
Free Cash Flow went negative this quarter - operating cash flow of $(97.7) million less $34.1 million of capital expenditures - a reversal from the strong cash generation of Q3 and Q4 2020. The filing attributes the operating cash outflow primarily to working-capital timing around settlements receivable and customer funds, which scale mechanically with Cash App growth rather than signaling an operating problem on their own - but it's worth watching whether this becomes a pattern. Total liabilities grew faster than assets, driven by PPPLF advances to Square Capital nearly doubling (to $764.2 million from $464.1 million at year-end) and continued growth in customers payable.
Square's headline 266% revenue growth and return to GAAP profit both happened in the same quarter that bitcoin pass-through crossed 69% of total revenue for the first time - the two stories are really one story.
Segment Comparison: Cash App vs. Seller
Q1 2021 vs. Q1 2020
| Metric | Cash App Q1 2021 | Cash App Q1 2020 | YoY | Seller Q1 2021 | Seller Q1 2020 | YoY |
|---|---|---|---|---|---|---|
| Segment Revenue | $4,039.6M | $527.6M | ✅ +666% | $1,017.7M | $853.5M | ✅ +19% |
| Segment Gross Profit | $495.5M | $182.7M | ✅ +171% | $468.0M | $355.8M | ✅ +32% |
| Implied Gross Margin | 12.3% | 34.6% | ⚠️ -22pp (bitcoin dilution) | 46.0% | 41.7% | ✅ +4pp |
Cash App
Cash App's headline segment revenue grew 666% year-over-year, but 87% of that segment's revenue this quarter ($3.51 billion of $4.04 billion) was bitcoin pass-through. Square's own commentary in this filing states that as of March 31, 2021, gross profit generated from bitcoin transactions was only 8% of total gross profit - a useful reality check against the segment revenue number, since bitcoin's razor-thin margin means it barely moves gross profit even while dominating the revenue line. Cash App gross profit still grew a real 171%, evidence the underlying financial-services business (Cash Card, direct deposit, peer-to-peer) kept growing at a healthy clip independent of bitcoin.
Seller
Seller revenue grew a solid 19% and gross profit grew 32%, with GPV up 29% year-over-year - continuing the recovery pattern that began in Q3 2020. Seller's implied gross margin actually improved 4 percentage points, extending the mix-shift-toward-subscription-and-services trend flagged in the FY2020 wrap-up.
Key Operational Metrics
Q1 2021 vs. Q1 2020
| Metric | Q1 2021 | Q1 2020 | YoY |
|---|---|---|---|
| GPV | $33,138M | $25,743M | ✅ +29% |
| PPPLF Advances Outstanding (period-end) | $764.2M | n/a - program didn't exist yet | — |
Stock Price: A Steady Climb to a New All-Time High
Square's stock closed 2020 at $217.64 and kept climbing through Q1 2021, hitting $227.05 by March 31 - a new closing high at the time, up 4.3% for the quarter and roughly 7.3x its March 2020 pandemic low. Over the trailing two years (April 2019 through March 2021), the stock's range spans from that ~$31 COVID low to the new $227 high, meaning the entire two-year window is still dominated by the 2020 crash-and-recovery pattern rather than anything new happening in Q1 2021 itself - the quarter's own price action (a modest, steady climb) was unremarkable relative to that backdrop, so it's folded into the valuation section below rather than broken out further.
Beyond the Usual
A $170 Million Bitcoin Bet Is Already Up 136% on Paper - and None of It Is on the Income Statement
The fair value of Square's bitcoin investment was $472.0 million as of March 31, 2021 against a $200.1 million carrying value - a $271.9 million unrealized gain that, under indefinite-lived intangible asset accounting, doesn't appear anywhere in reported income or equity. The company already took $19.9 million of impairment losses this same quarter on the same position, when bitcoin's price dipped intra-quarter below the carrying value at some point. The asymmetry is structural: every price drop below cost shows up as a real charge to operating expenses, but no amount of appreciation above cost shows up until the position is sold. A reader relying only on the income statement to gauge how this bet is performing would see a $19.9 million loss and miss a $271.9 million unrealized gain sitting in the same footnote.
The PPPLF Facility Nearly Doubled Again in a Single Quarter
PPPLF advances to Square Capital grew from $464.1 million at year-end 2020 to $764.2 million by March 31, 2021 - a $300.1 million increase in one quarter, funded by a second PPPLF agreement Square Capital entered on January 29, 2021. This continues the pattern flagged in the FY2020 post: Square Capital's role as a federal small-business-relief conduit kept scaling well past the original 2020 PPP round, not winding down as some might have expected a year into the program.
The Texas Tax Dispute and the McKelvey Lease Remain Exactly Where They Were
The $38 million Texas Comptroller sales-and-use-tax assessment first disclosed in Q3 2020 is repeated in this filing with no new developments. The related-party lease with an affiliate of co-founder Jim McKelvey - tracked since Q1 2020 - now shows a right-of-use asset of $21.3 million and lease liability of $33.1 million, both modest step-downs from year-end 2020's $21.6 million and $32.8 million respectively as the lease amortizes; the total committed payments over the 15.5-year term remain approximately $42.7 million.
Target Valuation Range
~14.4x EV/TTM Revenue at quarter-end, up sharply from ~10.8x three months earlier despite bitcoin-inflated growth doing most of the work. Richly valued on a trailing-revenue basis - the multiple expanded even as the quarter's own numbers show how much of the growth underneath it is a pass-through with almost no gross-profit contribution.
| Market cap → enterprise value | Q1 2021 (quarter-end) |
|---|---|
| Share price (period-end) | $227.05 |
| Shares outstanding (Class A + B, Mar 2021) | ~454.7 million |
| Market capitalization | ~$103.2 billion |
| Total liabilities | $9.03 billion |
| Less: cash and cash equivalents | $3.02 billion |
| Enterprise value | ~$109.2 billion |
| Peer-multiple sanity check | TTM ending Q4 2020 | TTM ending Q1 2021 | Change |
|---|---|---|---|
| Enterprise Value | ~$103.0 billion | ~$109.2 billion | ✅ +6% |
| TTM Revenue | ~$9.50 billion | ~$13.17 billion | ✅ +39% |
| EV/Revenue | ~10.8x | ~8.3x | ✅ multiple actually compressed |
The EV/Revenue multiple compressed on a trailing-twelve-month basis this quarter (enterprise value grew slower than TTM revenue), which looks superficially reassuring - but that's an artifact of TTM revenue itself being inflated by the same bitcoin pass-through problem flagged throughout this post, not evidence the stock got cheaper on a comparable basis.
| DCF scenario (illustrative, EV/Revenue-multiple-based) | Key assumption | Implied EV | Implied share price |
|---|---|---|---|
| Bear | Bitcoin revenue decelerates sharply through 2021; blended multiple compresses to ~6x forward revenue on ~$20B estimated FY2021 revenue | ~$120.0 billion | ~$261 |
| Base | Cash App non-bitcoin growth and Seller recovery continue; multiple holds near ~8x forward revenue on ~$20B estimated FY2021 revenue | ~$160.0 billion | ~$346 |
| Bull | Bitcoin trading volume stays elevated and Cash App financial-services adoption accelerates; multiple expands to ~10x forward revenue on ~$22B estimated FY2021 revenue | ~$220.0 billion | ~$472 |
| Current (quarter-end close) | — | ~$109.2 billion | $227.05 |
This remains a multiple-based sanity check rather than a full discounted cash flow - a single profitable quarter after three loss quarters, with a revenue base this distorted by bitcoin pass-through, isn't enough history for a reliable multi-year cash-flow projection. The FY2021 revenue estimates above are simple extrapolations, not company guidance; treat the resulting range as a framework for the market's implied growth expectations, not a price target.
Square, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC.