Also, if you saw the MA/V earnings reports, one of the CEOs [MA?] said they are cooperating with the other to have a single payment button on phones that you can load either processor’s credit cards on for payment.
I like SQ and if it returns to a reasonable price [for their growth] I’ll own it again.
So the point is that Square has morphed into something else…Square does seem to need to create its own customers…thus likely driving down margins.
But Duma, these aren’t game changing acquisitions. They’re not doing what SNCR did and buying a company that’s practically larger than they are! They are a $20 billion dollar company and they paid just a few hundred million for Weebly. It’s whatevs. Basically about one quarter’s revenue. Don’t sweat it.
Sure, Square started by allowing small businesses to take payments easier. But then they added a killer app, so to speak, when they realized they could offer these businesses extremely profitable short term loans…and software the businesses can use…and now websites. What’s wrong with any of that? These all seem like great, high margin offerings. Gross margin on their subscriptions revenue are pushing 70%.
What’s so bad about creating your own customers? It seems like they are creating an ecosystem that is valuable and in high demand.
Bear
That business, were it to have played out that way, would have high margins for sure.
Duma, have to disagree with you there. Payment processing is largely a commoditized service, with lower margins. It’s the other services SQ offers, that have the potential for higher margins.
That revelation does create concern when one contemplates the control that AMZN has with its planned transaction services…it certainly doesn’t need Square…and its ecosystem is built out like none other and is truly massive.
I’m not too worried about Amazon. For starters, how many retailers will really want to give that type of data over to the “Death Star”. I’m guessing not too many?
https://www.fool.com/investing/2017/11/23/the-biggest-obstac…
It might gain some traction with restaurant customers which kinda makes sense that TGI Fridays was one of their first larger customers: https://www.fool.com/investing/2017/07/27/amazon-payments-wa…
But I think SQ’s ecosystem will prove to be more attractive to most restaurants. That’s just a guess, could be wrong, and I feel like I got both bets covered by owning Amazon too 
Matt
Long AMZN, SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx
Also, if you saw the MA/V earnings reports, one of the CEOs [MA?] said they are cooperating with the other to have a single payment button on phones that you can load either processor’s credit cards on for payment.
NajdorfSicilian,
They both said it and it will be a collaborative effort that will include Amex, Discover, MA, and V. But retailers will still need an online payment processing service, this will just add a convenient button for consumers to use when they check out. If this hurts anyone, it will be PayPal, not SQ. PayPal has found a huge amount of traction with its One Touch solution over the past year and a half. The quick and painless checkout button works wonderfully well and has a sales conversion rate almost twice that of the competition when it comes to online sales: https://www.fool.com/investing/2017/11/04/paypal-is-the-obvi…
That being said, it will be a year before the standards are agreed to and this product can be rolled out in a big way (that’s according to MA CEO Ajay Banga, I thought 1 year was a bit optimistic). Personally, I think there will still be plenty of room for PayPal, but it does make me want to add to MA/V before PayPal at this point. But I think Square will be almost wholly unaffected by this. JMHO.
Matt
Long MA, PYPL, SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx
What’s so bad about creating your own customers? It seems like they are creating an ecosystem that is valuable and in high demand.
Bear
They moved away from their core competencies…because they obviously felt they had to…caviar had been their fastest growing business for a while…they risk being masters of none…or at the least…reducing their margins. A food delivery service? A food catering service??
IMO, when a company has to create its own customers because their isn’t enough demand for their core competency, they have morphed into something else…initially, one will be pleased with the revenue growth but that business strategy is VERY difficult to sustain…and keep growing.
I like to refer to Michael Porter who I think has written some seminal material on corporate strategies and strategic plans:
http://www.quickmba.com/strategy/porter.shtml
Square’s strategy is a mess IMO…may still be successful but it sure seems to be a rolling stone…for a while there they were even talking about merging with Twitter.
They moved away from their core competencies…because they obviously felt they had to…caviar had been their fastest growing business for a while…they risk being masters of none…or at the least…reducing their margins.
Duma,
Just want to respectfully push back some. I don’t think of it as moving away from their core competencies as much as I see the company is giving itself optionality, a concept David Gardner has discussed many times: https://www.fool.com/investing/2017/10/30/9-self-evident-foo…
What is Square’s mission as a company? Is it to provide seamless payment processing capabilities? No. It’s to empower small businesses, enabling them to compete with the big boys in their field.
We believe the economy is better when everyone has access. When everyone has room to grow. No one should be left out because the cost is too great or the technology too complex.
So we’re building easy tools to empower and enrich people. Tools that shorten the distance between having an idea and making a living from it—because we believe in fair and square.
…
We’re here to help sellers of all sizes start, run, and grow their business—and helping them grow their business is good business for everyone.
From https://squareup.com/about
If you think of Square in this light, I don’t see anything the company has introduced as moving away from their core mission. It was just that introducing a cheap and simple way for merchants to process card payments was its first step to empowering small businesses.
Matt
Long SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx
IMO, when a company has to create its own customers because their isn’t enough demand for their core competency, they have morphed into something else…initially, one will be pleased with the revenue growth but that business strategy is VERY difficult to sustain…and keep growing…
…Square’s strategy is a mess IMO…may still be successful but it sure seems to be a rolling stone…for a while there they were even talking about merging with Twitter.
Duma,
I think the business results speak volumes. Look at revenue acceleration. Look at the 80% self-onboarding rate. Look at the success in attracting larger merchants. Look at the Net Promoter Score of 70. Look are the improving operating leverage. Their customers love them and their customers will stay with them because of their past and continued implementation of their core strategy. Their strategy is to create an ecosystem with all the tools that merchants needs so merchants can focus only on growing their business and not at all or much an building/implementing and maintaining the business systems and tools. Square provides customers more and more features and services (i.e. what Dorsey calls superpowers) that make the merchants’ lives easier so they can grow the business revenue.
Shopify is doing a similar thing. Both companies are focusing on 3 areas:
Both companies are plowing all cashflow back into initiatives that will accelerate 1-3 above and enable them to capture more and more merchants while monetizing more and more services that help their current and future merchants.
Anyway, that’s how I see it.
Chris