Square`s growth strategy and the masses

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The ten-year-old Fintech that listed on NYSE exactly 4 years ago – November 2015 with the ticker symbol SQ; continues to innovate. It is best known as a B2B Fintech in the payments space that had huge success with small merchants globally. It grew with POS terminals and smart credit card readers.

As a publicly-traded company there are several KPIs available (unlike for Robinhood) to quantify its growth, EBITA, and profitability.

Payments processing, its core business, was growing at 30%yoy in Q2 2018. This growth rate has steadily started declining (roughly 1% each quarter) and Square reported at 25% yoy growth for Q2 2019.  Despite this relative slowdown in growth, the company reduced substantially its double-digit losses to a $7million loss for Q2 2019.

In a letter to shareholders at the end of 2018, Square reported 15million monthly active users.

What caught my attention are Square`s approach to crypto and its pivot towards gaining a footing in retail business in addition to its B2B outreach.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

In a post a few weeks ago Ilias Louis Hatzis highlighted Revolut`s aggressive fundraising goals and how they may use their crypto features to get from 8 million users to 100million users. From the stats (end of 2018) presented, Etoro and Square were leading in terms of new customers added since they introduced crypto features. Both companies showed an additional 6 million new users.

Publicly disclosed numbers for unique Square`s Q1&Q2 business show evidence of the impact of Square`s crypto offering to its business.

Q1 2019 – Square’s Cash app brought $65.5million in revenue from sales of Bitcoin

Q2 2019 – Square’s Cash app brought $125million in revenue from sales of Bitcoin

Square`s Q2 2019 total revenues were $260million!

Half of Square`s revenues were generated from Bitcoin sales to retail.

Blockconomi reports that Square processed $125million worth of Bitcoin during Q2 2019. This is equivalent to about 1700 BTC or 10% of the BTC mined during that period.

Square’s Cash App is an easy way to trade and store Bitcoin for novices with small amounts to invest. It is a custodial wallet and a very simple fiat to Bitcoin exchange and vice versa. There is no direct payment capability for now, but you can send and receive Bitcoin to another Square Cash app user and use the Square cards in combination with the withdraw features to pay.

Who should be concerned about this growth? Etoro, Coinbase, Robinhood, Revolut?

For now, I don’t think that Etoro and Coinbase should be concerned as Square`s Cash App can be complementary to them.

Before looking into the threat to Robinhood`s and Revolut`s target market, there are two more strategic initiatives from Square to consider.

Square is planning to add stock trading capabilities and at this point it can only be a freemium service. Square reports they will offer fractional share ownership, something that Robinhood does not offer yet. Betterment and Stockpile offer fractional share ownership and this week Charles Schwab said they will introduce this capability too.

Square Cash App is venturing into investing. Users could buy $1 worth of Bitcoin and now will be able to buy $1 worth of Amazon stock. This makes moving money Instant, Invisible, and nearly free for payments between peers, for investments and to merchants. Sounds more like stepping into the space that Robinhood aims to target.

Square`s journey into becoming a Fintech platform with network effects is unique. It is one of the few that chose to be publicly traded and continues to innovate in its own unique way. It was born in payments space and with a B2B focus to address needs of mom and pop stores. Its decision to use Bitcoin as the one and only crypto to attract newbies and millennials is not a random choice. Square is educating masses on its Cash App to invest a $1 in BTC and at the same time is integrating conventional public markets. They have a great chance to be remembered as the app that taught investing to youngsters. Square has additional potential going for it, as its CEO, Jack Dorsey, has taken a strong stance in cryptocurrency space. His vision is not to design and deploy a Square coin or some other private consortium coin a la LIBRA. Square has an in-house developer crypto team of five people working with the Bitcoin community on the open-source code. The team is supporting Bitcoin-related open source projects.

Who is who in the Square crypto team

Square is committed to play a role in Bitcoin development and bringing it to the masses. At the same time, it adds investment capabilities. Will this compensate for the naturally declining growth rates in the payment space, and bring it to profitability? Currently, trading at 50+ x times forward earnings. Several value investors call for an extremely overvalued stock. The question is whether Square`s expansion to retail will get it sooner to profitability and change the way the market values its business potential.


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