Shares of Square (NYSE: SQ) rose sharply on Wednesday, following the fintech star's strong second quarter results. By the close of trading, Square's stock was up 7.1% after rising as much as 15.8% earlier in the day.
Square's revenue soared 64% year over year, to $1.9 billion, though much of the gains were driven by a surge in the company's low-margin bitcoin trading revenue. However, even if we exclude bitcoin revenue, Square's Cash App revenue was still up a stunning 140%, to $325 million. The popular peer-to-peer payments app ended the quarter with more than 30 million active customers.
Additionally, Square's merchant customers demonstrated an impressive ability to adapt to shifting retail trends during the COVID-19 crisis. Square's gross payment volume (GPV) from online channels surged 50% year over year -- and comprised more than 25% of its total GPV -- in the second quarter. (GPV is, essentially, the total dollar amount of all card payments processed by Square's merchant customers on its platform.)
Square has an opportunity to disrupt a large swath of the traditional banking industry. Cash App could help Square wrestle away market share from banks, particularly if more users deposit funds into the app rather than their checking accounts. In time, Square will likely use these funds to issue loans, which could allow it to build a significant presence in the mortgage and personal loan markets.
Combined with its core seller ecosystem and booming cryptocurrency business, Cash App gives Square tremendous optionality. Its shareholders, in turn, have many ways to win.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square and recommends the following options: short September 2020 $70 puts on Square. The Motley Fool has a disclosure policy.
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