20:57Forget Bitcoin, Buy PayPal and Square Instead
The importance of Bitcoin
During PayPal's recent earnings call, CEO Dan Schulman indicated that users responded with overwhelming enthusiasm to the company's Bitcoin launch. Even more exciting, Schulman reiterated the company's plan to enable Bitcoin as a payment method at any of PayPal's 29 million merchants later this quarter.
However, Bitcoin revenue comes with incredibly low margins -- in the most recent quarter, Square's gross margin on Bitcoin was just 2%. In other words, despite accounting for the majority of Square's revenue, Bitcoin's contribution to the bottom line is negligible. So what's the point?
For both PayPal and Square, Bitcoin is a way of engaging users. It's one more feature that enhances their mobile app ecosystems. And as these fintech companies add new users, it becomes more likely that those users will engage in other profit-generating activities.
For example, Square's Cash App also allows users to send peer-to-peer transfers, instantly transfer funds to bank accounts, receive direct deposits, buy and sell stocks, and make purchases using the Square Cash Card. And users who adopt two or more of those services transact three to four times more frequently and generate three to four times more gross profit than other users. Additionally, in the third quarter of fiscal 2020, 23% of Cash App consumers were daily users compared to 15% in the third quarter of fiscal 2018. In other words, Square's strategy is working, and PayPal will likely see similar benefits.
These fintech companies have developed highly engaging product ecosystems that empower both sellers and consumers. Whether it's the ability to accept digital payments, invest in cryptocurrency, or transfer money to friends or family, both PayPal and Square provide truly valuable services. Moreover, both have built sizable networks protected by strong moats, creating a barrier to entry (something Bitcoin lacks). And that has translated into tangible wealth and significant revenue growth.
DATA SOURCE: PAYPAL AND SQUARE SEC FILINGS. TTM = TRAILING 12 MONTHS.
Finally, digital payments and e-commerce are only becoming more prevalent around the world. And in the years ahead, the tailwinds from those trends should help PayPal and Square continue to create value for all stakeholders, even if Bitcoin's value evaporates.
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