How Square managed guidance and cryptovolatility
On March 17, 2020, San Francisco and the surrounding Bay Area counties went into lockdown – the first in the US.
For most of the 7 mn residents of the Bay Area, the lockdown raised questions about how to protect themselves from the spread of Covid-19 and how to work remotely. But for the IR team at Square, the financial services and digital payments company, there was the small matter of an investor day that had been planned to take place on March 18, 2020.
The company’s share price had already fallen from $83 to $38 in the space of two weeks, as Covid-19 spread across the US. Like hundreds of other companies, Square moved quickly to withdraw the annual guidance it had issued just months before but, as Nikhil Dixit, Square’s director of investor relations, tells IR Magazine, the company knew it needed to meet investor demand for information.
‘As the pandemic was onsetting, we were getting questions and speculation about the impact on us,’ Dixit says, noting that a large proportion of Square’s business was based on processing payments for vendors during in-person interactions.
After cancelling the investor day and withdrawing guidance, the company decided it needed to communicate proactively. On March 24 it hosted a webcast investor update, which emphasized the company’s long-term outlook with a 53-slide deck.
‘We focused on leveraging the content for the investor day and repurposed it to publish a deck for the update,’ Dixit says. ‘We also scrambled internally for a week or so to describe the real-time impacts on our business. That set the tone for trust and transparency. As April and May progressed, IR drove a discussion about the data points we had the most confidence in.’
The company continued to communicate frequently throughout the rest of 2020, participating in 10 events – including earnings calls, the annual meeting and a partner and developer conference – between May and December. During that time, the company’s share price rocketed past its early 2020 levels. It currently sits at $224.
One of the more unusual aspects of IR at Square is that the company’s CEO, Jack Dorsey, is also CEO of Twitter. The two companies have a combined market cap of $140 bn. For 27-year-old Dixit, this means the four-person IR team needs to be knowledgeable about the business, well networked and prepared to take on more of the investor marketing responsibilities.
‘We take an approach where there’s no substitute for knowing the business strategy yourself,’ Dixit says. ‘We spend a lot of time working internally with the product leads so that, from a distribution of time perspective, we do much more IR-only marketing, roadshows and events. We also realize we’re frankly not the easiest story to pick up and learn in a week, or a month.’
Dixit says the company’s exposure to Bitcoin has added an additional layer of complexity for the investment community to understand. Square started allowing users of CashApp, the company’s mobile payments service, to buy Bitcoin in 2018. More than 3 mn customers bought or sold cryptocurrency through the app during the last year, Dixit adds, which accounts for less than 10 percent of the company’s overall gross profit. In addition, Square is one of a growing number of companies that owns cryptocurrency as part of its treasury.
‘From a company perspective, Jack sees a strong correlation between our mission and the efforts of cryptocurrencies to democratize access to financial services,’ Dixit says. ‘From a shareholder perspective, it’s been an interesting journey. For our analysts, initially the revenue accounting we have to describe for Bitcoin adds a lot of noise for Gaap accounting. We’ve spent a lot of time educating our analysts about how to model on that.
‘The other dynamic is the volatility around Bitcoin and how it influences stock price. In periods where there’s significant changes in the price of Bitcoin, the important thing we have to explain is that it’s not the price that matters but the demand for Bitcoin.’
While the last year has posed unique challenges for all of us in maintaining or increasing our productivity while living through a global pandemic, Dixit’s extracurricular work helps him to contextualize a challenging day with Square.
In his spare time, he serves as treasurer and board member of Taasa Health, a non-profit he co-founded in 2019. It is committed to building health clinics and other community resources in East Africa. Since its launch, the company has raised more than $100,000, built a health clinic in eastern Uganda and invested in community resources and education.