Square - An observation

On buying things in the Union Square Farmers’ Market in NYC, I’ve noted that almost all the booths use S Square and take credit cards (eight out of nine that we visited, anyway, the only exception being a guy that just sold little sprouts). I thought that people still invested in Square would like that little data point.

Of course there are two ways to read that:

1 - Square has been very successful at enlisting these guys and has done a great job.

2 - Square has fully penetrated this market, and there is no way they could grow it 50% again, even once, much less compound 50% growth for several years. Hard to imagine even 20% growth compounded. Their ONLY hope is to move upmarket (which they are trying to do).

Best,

Saul

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At the risk of posting a one-liner, the correlation of the degree of penetration and the highly urban location suggests to me a third point…

  1. Perhaps worth considering is the possibility that there is a gradient of market penetration, with Union Square Farmers’ Market in NYC at one extreme, falling off as one moves away from urban centers.
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According to the 2018 World Payments Report; in those markets designated as Mature markets (North American, Europe and Asia-Pacific) the CAGR for worldwide non-cash transactions from 2016-2021 averages 6.7% in these Mature markets. From a high of 9.9% in Asia-Pacific to a low of 5.6% in North America.

I would suggest that one of the issues stunting the growth of a non-cash payment company such as Square may simply be the modest growth of the overall market segment? Additionally, the number of quality companies in the space such as Venmo, Zelle, Paypal, Stripe, ApplePay, even Visa, Mastercard and Alibaba.

I believe in this market segment, personally owning and being Long on: Mastercard, Visa, Paypal and Square, but perhaps my expectations have been too high based on number of competitors in the space as well as the modest annual growth in the market. All of these holdings have done okay, but nothing quite like the high growth stocks discussed on this board:

MA +64.4% as of January '18
V +42.0% as of February '18
PYPL +24.1% as of January '18
SQ +44.1% as of February '18

As mentioned, perhaps I should ratchet back my expectations or perhaps consider selling and moving adding to the positions I have in companies discussed on this board.

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3) Perhaps worth considering is the possibility that there is a gradient of market penetration, with Union Square Farmers’ Market in NYC at one extreme, falling off as one moves away from urban centers.

Hi RHinCT,
Good point. However, none of these farmers comes from an urban center, and certainly not from NYC. They are farmers! They drive in from CT, MA, PA, NJ, NH, upstate NY, etc, and often stay overnight with friends, and drive back, or even drive back the same night. Granted, very rural parts of the country may not have the same penetration, but I still wonder whether there are enough prospects who are not signed up in the whole country to make two years of even 25% growth in subscribers likely.
Saul

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I agree with Saul here. Square is clearly trying to stretch into new businesses that feel further and further away from the core that made them so successful in their earlier stages.

I have not looked at Squares market cap lately, but I stopped being as interested in it when it grew to the $30B market cap range. Admittedly, I did the same with SHOP and that’s been a mistake so far, but SHOP is more software oriented (I think) which makes it a more attractive investment between the two.

My own observation from Square is that it used to feel like Square POS we’re all I saw in newer merchants but now it feels like I see more and more competitors popping up and taking market share.

Completely qualitative as I have not looked at Squares numbers recently.

Over in the UK at present and some heavy SQ advertising on TV. FWIW… no position myself.

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Since foreign markets have been brought up, let me add that I saw an ad for SQ on Japanese TV for the first time about 2 weeks ago. I’ve seen SQ used in only 2 or 3 places to date, but this is the land of mom-and-pop stores, and “cashless” is now being touted. So if SQ can move efficiently in Japan (where I currently live), there is huge potential.

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All,

A statistically valid sample size is based on the population’s homogeneity and it’s size. Nine people in one location, ok region, is not a valid sample size.

Larry