They rely on Bitcoin to attract consumers to their apps and keep them engaged. Their stocks are now diverging, as Square has been underperforming since Bitcoin started sliding a month ago.
If the crypto bear market continues, both stocks are likely to suffer, although Square (stock ticker: SQ) is likely to face more pressure, in part due to its close association with Bitcoin among retail investors.
Both payment apps have made buying, selling and storing cryptocurrency easy. PayPal (PYPL) offers many cryptocurrencies on its app, while Square offers only Bitcoin. The companies act as an intermediary, and receive transaction fees and a profit margin on the transactions.
The net revenue from cryptocurrencies is not a significant part of their overall business. PayPal should get a 2% increase in revenue from crypto trading this year, coming from $300 million to $600 million, out of a total of $26 billion, according to MoffettNathanson analyst Lisa Ellis.
Square accounting is unconventional: It reports Bitcoin revenue on its income statement, which was $3.5 billion in the first quarter, out of $5.1 billion in total revenue. Square then deducts Bitcoin purchase costs and booked just $75 million of gross profit on transactions, out of $964 million of gross profit for the quarter.
While crypto profits are slim now, both payment companies see crypto transactions as a way to gain customers and increase interaction with their apps.
“Cryptos are used by users of apps multiple times a day to check prices, and this gives companies opportunities to sell other services,” Ellis says.
Square is closely associated with cryptocurrencies, however, gig founder and CEO Jack Dorsey is a very big supporter, recently tweeting that Bitcoin is changing everything “for the better,” digging into fellow tech mogul Elon Musk (who may have been nervous about cryptocurrency). its environmental losses). Square has also invested $220 million in Bitcoin to its balance sheet over the past two quarters, and that has caused the investment to plummet.
It’s clear that the cryptocurrency’s decline is affecting Square more harshly; Over the past month, Square’s stock is down about 17% against PayPal’s 4% slice.
Crypto isn’t the only reason Square is suffering. It has been hit hard by the flight from multiple high-growth stocks as investors price high inflation expectations, reducing the present value of future earnings.
Squared trading 113 times the organization’s value against Ebitda (earnings before interest, taxes, depreciation, and amortization), based on estimates for the next twelve months. PayPal is 43 times the value of the enterprise compared to Ebitda, while
Master Card Credit Card
(MA) in 27 to 30 times.
“They’re two of my favorite companies for long-term payments,” says Ellis, referring to PayPal and Square, but in practice, institutional investors will revolt against these multiple high-end stocks if they’re concerned about term-inflation. “
Investors were excited about stocks as Bitcoin prices soared, but they may now have to add Bitcoin and other cryptocurrencies to their list of concerns.
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