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PayPal funds

and

Square

rely on Bitcoin to attract consumers to their apps and keep them engaged. Their stocks now diverge, Square underperforming since Bitcoin started falling a month ago.

If the crypto bear market persists, both stocks are likely to suffer, although Square (ticker: SQ) is likely to be under more pressure, in part because it is more closely associated with Bitcoin among retail investors.

Both payment apps have made it easy to buy, sell, and store crypto. PayPal (PYPL) offers several cryptos on its app, while Square only offers Bitcoin. Companies act as brokers, earning transaction fees and profit margin on transactions.

Net crypto income is not a big part of their overall business. PayPal is expected to achieve an additional 2% increase in crypto trading revenue this year, amounting to $ 300 million to $ 600 million, out of a total of $ 26 billion, according to MoffettNathanson analyst Lisa Ellis.

Square’s accounting is funky: It records Bitcoin revenue on its income statement, amounting to $ 3.5 billion in the first quarter, out of $ 5.1 billion in total revenue. Square then deducts its Bitcoin purchase costs and recorded just $ 75 million in gross margin on transactions, out of $ 964 million in total gross margin for the quarter.

While the benefits of crypto are now minimal, both payment companies see crypto transactions as a way to acquire customers and increase engagement with their apps.

“Their crypto users are in the apps several times a day checking prices,” says Ellis, “and that gives businesses the ability to sell other services.”

Square is more closely associated with crypto, however, at the party because founder and CEO Jack Dorsey is such a big supporter, recently tweeting that Bitcoin is changing everything “ for the better, ” a dig at another tech mogul. Elon Musk tech (which may have undermined crypto on its environmental toll). Square has also invested $ 220 million in Bitcoin for its balance sheet over the past two quarters, and it has taken a write-down on the investment.

The crypto slowdown is clearly hitting Square harder; Over the past month, Square’s stock has slipped about 17% compared to a 4% drop for PayPal.

Crypto isn’t the only reason Square is suffering. It is hit hard by the flight in high growth multiple stocks, with investors pricing inflation expectations higher, reducing the present value of future earnings.

Square is trading at 113 times enterprise value versus Ebitda (earnings before interest, taxes, depreciation and amortization), based on estimates for the next 12 months. PayPal represents 43 times the enterprise value for Ebitda, while

Visa

(V) and

MasterCard

(MA) are 27 to 30 times.

“These are two of my favorite long-term payments companies,” says Ellis, referring to PayPal and Square, “but in practice institutional investors are going to rebel against these high multiples if they are concerned about inflation at term. “

Investors were excited about the stocks as Bitcoin prices skyrocketed, but now they may have to add Bitcoin and other cryptos to their list of worries.

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