I own Square because of the Cash App business. I think the seller ecosystem is a good business, but the Cash App ecosystem is a great business.
Zoom gross profit the last 2 years:
$269.5 M to $507 M for 88% growth
Cash App gross profit the last 2 years:
$195 M to $458 M for 135% growth
I would argue, that before the coronavirus, the cash app business was worth just as much as Zoom, about 10% less gross profit but growing much faster. To be determined how the value of each is now after the coronavirus, but both are worth more.
SQ is a $20 B market cap, which includes the seller business which was growing at 32% with $1.4 B of gross profit ( TBD with coronavirus), compared to ZM at $40 B.
Correct, the message boards have been focusing on the impact to SQ based on reduction in daily transactions related to small businesses.
However, I think the point being presented in this post was related to the peer-to-peer portion of the SQ business model and the growth it has been experiencing.
“Square’s Cash App claims to have had approximately 24 million monthly active customers as of December 2019, up from 15 million in December 2018 and 7 million in December 2017, per an earnings release.”
“Cash App supports debit and credit cards from Visa, MasterCard, American Express, and Discover.”
“Downloads of Square’s Cash App are pulling further ahead of Venmo, according to research by Instinet. While the fintech firms’ apps each get installed on millions of phones every month, a sizable chunk of Square’s growth appears to come from lower-income customers on the margins of traditional finance.”
I agree with the spirit of the post. I own SQ and will continue to hold long term.
I think going in the shutdowns due to COVID-19, we should have been concerned about the hit SQ might take due to the closing of the small businesses they cater to. However if one is to say that the long term business could be sound (they might lose customers due to COVID-19 but there will be many others coming in after this pandemic has passed) then SQ value has been attractive especially when it was down in the low $30s. This COVID-19 issue has a finite duration. The duration of Square’s business expansion would last much longer than that.
Thanks Harley - SQ is 3.5% of my portfolio and I added a bit in the last few weeks. I wasn’t trying to be clever calling it fragile, but I didn’t have the conviction to add a whole bunch even though there was true panic. I found myself asking “how bad could this possibly get for SQ?” the same way some people were asking the same about airlines, hotels, etc
ZM has benefited from the destruction of COVID and people are asking “how good could this possibly get?”. ZM is 4% of my portfolio and I didn’t have the conviction to buy more at $89 or $104 or $120 or 144.