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Square Inc. reported lower-than-expected revenue for the third quarter as less volatile pricing for bitcoin impacted demand, though the companys chief financial officer noted strength in volume during October.

The company posted a break-even third quarter, after earning $37 million, or 7 cents a share, in the year-earlier quarter. On an adjusted basis, Square SQ, -4.07% earned 37 cents a share, up from 34 cents a share a year earlier, while analysts tracked by FactSet were expecting 38 cents a share. The fintech company grew revenue to $3.84 billion from $3.03 billion, while analysts had been modeling $4.39 billion.

Shares fell roughly 3% in after-hours trading following the release of the report.

Squares revenue total for the latest quarter consisted of $1.30 billion in transaction-based revenue, $695 million in subscription revenue, $37.3 million in hardware revenue, and $1.82 billion in bitcoin revenue. Analysts tracked by FactSet were expecting $2.6 billion in bitcoin revenue.

Bitcoin BTCUSD, +0.88% is a relatively low-margin business for Square, and the company incurred $1.77 billion in bitcoin costs during the quarter.

Bitcoin revenue and gross profit benefited from year-over-year increases in the price of bitcoin and number of bitcoin actives, the company noted in its shareholder letter, though bitcoin revenue and gross profit both declined on a sequential basis, which Square largely attributed to relative stability in the price of bitcoin.

Chief Financial Officer Amrita Ahuja noted on a call with reporters that as bitcoin prices increased in October, the company saw strength in demand.

The companys total gross profit for the third quarter came in at $1.13 billion, up from $794 million a year earlier. Analysts had been expecting $1.15 billion. Speaking on the call with reporters, Ahuja argued for the importance of the gross-profit metric as an indicator of Squares performance.

Squares Cash App mobile wallet generated gross profit of $512 million, whereas analysts tracked by FactSet were looking for $536 million. Wolfe Research analyst Darrin Peller suggested the miss wasnt particularly surprising.

Heading into the print, we believed Cash App would face waning impacts of government stimulus benefits and lower bitcoin revenues, he wrote in a note to clients. We believe these dynamics were known by most investors, who were expecting ~$510 million in Cash App gross profit.

The results were unusual for Square, especially given the companys track record of revenue/earnings beats, Wedbush analyst Moshe Katri told MarketWatch. The results likely reflected the impact of fading stimulus payments, which was a similar theme at other payments names as well, he continued.

During the third quarter, Square saw a lower portion of transactions take place through debit cards, while average transaction size also fell on a year-over-year basis. Despite the decreases, Square noted in its shareholder letter that these trends remained elevated relative to historical periods partly as a result of changes to consumer behaviors due to COVID-19 and government disbursements, which may not continue in future quarters.

Square saw gross payment volume of $45.43 billion, up from $31.73 billion a year earlier. The FactSet consensus was for $45.61 billion.

Square expects seller GPV to be up 42% on a year-over-year basis during October.

Square has the largest short interest in the data-processing and outsourced services sector with $9.7 billion, according to data from S3 Partners. That short interest has increased by $996 million over the past 30 days. Squares short interest as a percentage of its float stands at 9.81%.

Shares of Square have declined about 7% over the past three months as the S&P 500 SPX, +0.37% has risen roughly 6%.

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Square says bitcoin demand slowed in Q3 but picked back up in October; earnings weigh on stock - MarketWatch