Square Inc. (SQ) - Get Square, Inc. Class A Report shares slumped lower Wednesday after the financial payments group run by Twitter Inc. (TWTR) - Get Twitter, Inc. Report CEO Jack Dorsey 'doubled down' on its bitcoin investment following a stronger-than-expected fourth quarter earnings report.
Square said it's added a further 3,318 bitcoins to its balance sheet at an aggregate value of $170 million. That adds to the 4,709 bitcoin it purchased in October of last year for around $50 million. The cryptocurrency now represents about 5% of Square's total cash holdings as of the end of 2020.
Square said bitcoin volumes per customer increased more than two and a half times compared to the same period last year over the fourth quarter, while January say more than 1 million new customers buying the digital currency for the first time.
"We believe the Internet needs a native currency, and we believe Bitcoin is it," Dorsey told investors on a conference call late Tuesday. "We believe it has the highest probability of empowering more people in the economy in a fair way."
"We're doing a lot to ensure this from a product, open source development and open patent perspective," he added. "And by us owning Bitcoin, our incentives are aligned with skin in the game.
"We're also going to double down on our commitment to Bitcoin and continue to look for new ways to connect our product lines within the Cash App,' Dorsey said.
Square shares were marked 7% lower in early trading Wednesday to change hands at $238.60 each, a move that still leaves the stock with a 60% gain over the past six months.
Square reported fourth-quarter adjusted earnings of 32 cents per share on total net revenue of $3.16 billion, a 141% year-over-year increase that topped the Street consensus forecast. Excluding bitcoin revenue, total quarterly net revenue was $1.4 billion.
That means that, like the value of "goodwill", it can't be increased. However, it can be marked down when bitcoin prices decline, leaving stock prices at least partly-linked to bitcoin fluctuations.
"The investment in providing a simple, engaging, and affordable means for buying, selling, and transacting with bitcoin has clearly been a successful strategy for attracting users," said JMP Securities analyst David Scharf.
"But while Square has proclaimed that “the internet requires its own native currency” (and it has bet on bitcoin), can we ever expect to see widespread merchant acceptance of bitcoin as a payment mechanism and can Cash App volume growth be sustained if the answer is “no”?"