Square Inc.: Making the digital economy accessible to all

written on August 18, 2021

With a mission to help sellers start, run and grow their business and individuals to send, spend and save money, Square combines sophisticated software with affordable hardware to create a cohesive commerce ecosystem for all, allowing both merchants and consumers to participate in the digital economy.

Since its first chip reader, the company has not only facilitated commerce, but has also helped put the entire business of mobile payments on the map. As a result, its cohesive approach to commerce together with the company’s charming CEO Jack Dorsey has translated into strong growth. Its stock has skyrocketed to over 2,600% since going public in 2015, while its revenue has been increasing as its customer base has been booming. With digital payments and eCommerce still in the early stages of adoption, Square’s days of trailblazing appear to be far from over.

A brief history of Square

Headquartered in San Francisco, California, Square is a mobile payment company that centres on credit card processing and merchant solutions. Founded in 2009 by Jack Dorsey and Jim McKelvey, the original inspiration for Square was born when the two founders were unable to complete a $2,000 sale of glass faucets and fittings because the merchant could not accept credit cards. The conundrum sufficed to drive the two to establish the company out of a small office in St. Louis and to power businesses to make credit card transactions.

By 2012, annual net revenue amounted to $203.45 million and by 2019, revenue soared to $4.71 billion. In fact, the company generated more than $1.31 billion in net revenue in the fourth quarter of 2019 alone.

With the aim to allow person-to-person money transfer via its app or website, Square launched Cash App, formerly known as Square Cash, after which it introduced Square Cash for businesses, which powered individuals, organisations and business owners to use a unique username known as the $Cashtag to send and receive money.

Amongst its products, the firm boasts a number of devices, such as the Square Reader, which was the firm’s first product, the Square Stand which it unveiled in 2013 and which turns the Apple iPad into a more complete point-of-sale system and the Square Register, a standalone point-of-sale, designed for small to medium-sized businesses. Meanwhile, among its services, in 2012 the company enabled merchants to issue virtual gift cards, while physical gift cards were eventually added two years later. A year later it launched Square Payroll, a tool for small businesses that allows them to process payroll for their employees. Then, in 2018 it began allowing merchants to develop custom interfaces for the platform through an API (application programming interface).

As of December 2020, the company was counting 36 million monthly active Cash App customers, while during the same year, Square put approximately 1% of its total assets in bitcoin, purchasing an additional $170 million worth of bitcoin in February 2021 and bringing its total holdings to almost $500 million in the cryptocurrency.

With offices in the U.S., Canada, Japan, Australia, Ireland, Spain and the UK and more than 5,477 employees as of December 2020, Square has acquired a number of companies including Storehouse, Fastbite, Kili Technology, Weebly and Caviar, which it eventually sold to DoorDash in 2019 for $410 million, amongst others. Its market cap as of August 10, 2021 is that of $128.58 billion.

Fun fact

Originally the company was close to being called Squirrel, with the card reader shaped in the form of an acorn. Eventually, Dorsey picked up a dictionary and looked for words which started with ‘Sq’. He then settled on Square, claiming that the moniker aligned with the company’s mission.

When did Square go public?

Coming into the public markets at a time when tech IPOs were generally lacking, Square made its stock market debut on the New York Stock Exchange (NYSE) on November 18, 2015. Shares were priced at $9, slightly short of its targeted range of between $11 and $13, however, after selling its IPO shares at $9, the stock hit the ground running, opening at around $11.20 per share and continuing upward.

The company managed to raise $243 million at a valuation of around $2.9 billion.

How much would a $1,000 investment in Square’s IPO would be worth?

Square stock opened at $11.20 per share on the day of its IPO and reached a high of $15.91 in early 2016, after which point, the stock cooled off and dropped back to as low as $8.42 in mid-2016. Having said that, between this timeframe and late 2018, it has gone on a historic run that carried the stock all the way up to $99.01 on September 28, 2018. Then, between late 2018 to early 2020, it has been trading in a wide range of between $50 and $85. As a result, an initial $1,000 investment in the company’s IPO stock back in 2015 would be worth about $27,473 at the end of July 2021.

Is Square a buy?

The company’s hardware and software platform has become increasingly popular and has gained even further traction amongst those with a smartphone and a desire to process digital payments. And this can be seen in its strong financials. The company posted a 52% year-over-year increase in Q4 2020, with a gross profit of $804 million, up from the $794 million in Q3 2020, while total net revenue for the quarter was $3.16 billion, up 141% year-over-year, versus analysts’ consensus of $3.11 billion.

The company's consumer business Cash App has been booming, powering the rise with a 162% year-over-year increase in Q4 to $377 million in gross profit, while the Seller ecosystem generated gross profit of $427 million, up 13% year-over-year. More recently, Square posted its results for the second quarter of 2021, reporting a gross profit of $1.14 billion, up 91% year-over-year. Its Cash App, in particular, generated gross profit of $546 million, up 94% year-over-year, while its software and integrated payments have been the fastest growing products in its ecosystem, delivering average annual gross profit growth of nearly 50% over the past four years. Meanwhile, total net revenue was $4.68 billion, up 143% year-over-year.

As for the stock, the COVID-19 sell-off sent it tumbling down to $32.33 in March 2020, however, investors shrugged off worries over Squares’ stock exposure to small businesses and restaurants that had to close due to the pandemic and focused instead on the growth potential of its consumer Cash App. Although the mandatory business closures negatively affected many of its core seller customers, triggering a drop in its business, its comeback was as equally dramatic and as a result, the stock surged, reaching a new high on August 5, 2021 when it was trading at $281.81 per share.

What’s next for Square?

Square hiked its investments big time in 2021. As recently as July 2021, the company announced that it is entering the ‘Buy Now, Pay Later’ (BNPL) market following its plan to acquire Australian startup Afterpay for $29 billion. Its biggest acquisition yet which could pave the way for other purchases in the BNPL fintech space, the move comes hot on the heels of Apple’s (AAPL) announcement that it will enter the deferred payment space. Square plans to integrate Afterpay’s service with its seller ecosystem and payment platform.

According to GlobalData, Australia’s eCommerce market is forecasted to grow from A$46.7 billion in 2021 to A$70.5 billion in 2025 and based on the company’s 2021 Banking and Payments Survey, Afterpay accounts for 7.7% share of the total Australian eCommerce market, compared to the 5.5 % it occupied in 2020. Over the past year, BNPL services have exploded in popularity as consumers were borrowing and spending online during the pandemic. In fact, according to a Bank of America survey, the BNPL market is projected to grow 10 to 15 times by 2025 and it goes without saying that Square is set to benefit from this.

As competition with rivals Paypal (PYPL) and others is expected to heat up in 2021, with its multiple products and eyes set on improving further its digital wallet, coupled with the fact that mobile and digital payments are a rapidly growing market, Square appears to be well positioned to take this on.

How to invest in Square (SQ) stock with Moneybase Invest

Ready to buy a share in Square (SQ)? Your first step to tapping into a world of investment opportunities with Moneybase Invest is to sign up and open an account.

To do so:

  • Download the app from either Google Play or the Apple App Store. Alternatively, you may access Moneybase Invest on your desktop by visiting https://live.cctrader.com/
  • Once you’ve onboarded successfully and have funded your account, head over to the search bar at the top of your screen and input either the company name or ticker symbol.
  • Select the instrument of your choice from the list and then click on the Buy button on the window located at the bottom of your screen.
  • On the New Order page, input the number of shares you would like to purchase and hit the Place Buy Order. SQ has been added to your portfolio.

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The contents of this article are not intended to be taken as a personal recommendation to invest but strictly based on research and for information purposes only. Retail investors should contact their financial adviser for a suitability assessment prior to taking any investment decisions.

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Life’s full of mysteries. Your money shouldn’t be one of them.