How Square (Block) Makes Money: Transactions, Bitcoin, and Subscriptions

Block Inc. (SQ), formerly Square, is a financial services and online payments company that provides hardware and software tools to help businesses run and grow their operations. Among Block’s primary products are a point-of-sale hardware system, software for payments processing and analytics, Square Debit Card (a free business debit card), and Cash App (a peer-to-peer (P2P) payment service). The company also owns a majority in music-streaming service TIDAL and has recently launched initiatives to promote access to Bitcoin and other blockchain technologies.

Block faces a broad array of small and large competitors such as business software companies, payroll processors, payment terminal vendors, and banks. They include PayPal Holdings Inc. (PYPL), Intuit Inc. (INTU), Shopify Inc. (SHOP), and venture capital startup ShopKeep.

Key Takeaways

• Block is a financial services and mobile payments company that sells a broad range of products, including point-of-sale hardware and software.
• The company’s Cash App product generated most its revenue in Q4 FY 2021.
• The Square segment generated the majority of gross profit in Q4 FY 2021.
• Block recently completed its acquisition of Afterpay, enabling the company to offer “buy now, pay later” services to sellers using its Square payments ecosystem.

Square’s (Block) Financials

Since its 2015 initial public offering (IPO), Block has grown rapidly into one of the largest and best-known payment services companies in the U.S. But it only recently achieved profitability. Four years after going public, the company posted its first annual profit in fiscal year (FY) 2019. The company was profitable again in FY 2020 and FY 2021, but its profits have been declining since FY 2019.

Block announced in late February financial results for Q4 FY 2021, the three-month period ended Dec. 31, 2021. Although Block posted annual profits for all of FY 2021, it reported a net loss attributable to its common shareholders of $76.8 million in the fourth quarter. It was a significant deterioration from net income of $294.0 million in the year-ago quarter, which benefitted from a $274 million gain related to Block’s equity investments. Quarterly revenue grew 29.1% year over year (YOY) to $4.1 billion. Gross profit, which the company uses as a profitability metric for its individual business segments, rose 47.1% YOY to $1.2 billion.

Bitcoin revenue, which grew 11.7% YOY, accounted for 48% of total revenue, making it Block’s largest source of revenue in the fourth quarter. Block allows users to buy bitcoin through its Cash App, a service for which the company charges a small margin above the price it pays to purchase bitcoin. Bitcoin revenue will fluctuate depending on the volatility of bitcoin prices and customer demand. Transaction-based revenue comprised 32% of companywide revenue, while subscription and service-based revenue and hardware revenue accounted for 19% and 1% of the total, respectively.

Square’s (Block) Business Segments

Effective June 30, 2020, the company changed its operating and reporting segments. Previously, the company reported as a single entity. It now has two reportable segments: Cash App and Square, which was previously named Seller until the company changed its name from Square to Block. These two segments comprise the company’s two primary ecosystems. Block also provides products and services through TIDAL as well as some of its Bitcoin and blockchain initiatives, which are not assigned to a specific reportable segment. The results of these operations are not material and are presented within a general corporate and other category. Below we focus on the company’s Cash App and Square segments, for which the company provides a breakdown of revenue and gross profit.

Cash App

The Cash App segment refers to Block’s mobile cash application and provides financial tools to users of that app. It includes P2P payments, bitcoin and stock investments, and transactions related to the Cash Card, which is linked to customer stored balances that can be used to make purchases or withdraw funds from an ATM.

In Q4 FY 2021, Cash App generated $517.6 million in gross profit, up 37.4% from the year-ago quarter. The segment’s gross profit accounted for about 44% of the company’s total gross profit. Cash App revenue grew 17.5% YOY to $2.6 billion in Q4 FY 2021, accounting for about 63% of total revenue.

Square

The Square segment includes the company’s managed payment services, software solutions, hardware, and financial services offered to sellers, excluding those services that involve Cash App.

The Square segment generated $657.3 million in gross profit in Q4 FY 2021, up 53.9% compared to the year-ago quarter. The segment accounts for the majority of the company’s gross profit, at about 56% of the total. Square revenue rose 49.0% YOY to $1.5 billion, accounting for about 37% of total revenue.

Square’s (Block) Recent Developments

On Jan. 31, 2022, Block announced that it has completed its acquisition of Afterpay Ltd., an Australia-based financial technology (fintech) company that offers a “buy now, pay later” (BNPL) platform. Block first announced its agreement to acquire Afterpay in August 2021 in a deal valued at approximately $29 billion. The company now offers Afterpay’s BNPL services to the sellers using its Square payments ecosystem.

How Square (Block) Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Block and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Block releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Block discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Block breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Block Diversity & Inclusiveness Reporting

 
Race
Gender
Ability
Veteran Status
Sexual Orientation

Board of Directors
 
 
 
 
 

C-Suite

 
 
 
 
 

General Management
✔ (U.S. Only)
✔
 
 
 

Employees
✔ (U.S. Only)
✔
 
 
✔