Square, previously known as Block, Inc. (NYSE:SQ), is a well-known Fintech business that was established by Jack Dorsey, who also co-founded Twitter (NYSE:TWTR). As a result of Dorsey’s resignation as CEO of Twitter in November 2021, he will now likely have more time to devote to Block, which is advantageous. In December 2021, Square changed its name to “Block,” which Is believed to be superfluous and arbitrary. As they work to “create the future of Fintech” and “Block by Block,” It is believed that Blockchain can be a part of the company’s operations going forward.
A significant danger going forward is the high concentration of Bitcoin trading volume, which accounts for Square’s entire revenue. From it, it can be observed that revenue is down 22% from the previous year when it would be up 44% without Bitcoin. Since its peak in August 2021, Block’s share price has dropped by a startling 75%, effectively wiping out all pre-pandemic gains. The climate of high inflation and rising interest rates hasn’t helped matters and has led to a decline in the value of the growth stock sector. The good news is that Block’s product portfolio is still solid, Jack Dorsey can now devote all of his attention to the company, and the long-term secular tailwinds driving Fintech adoption remain unaffected. The size of the global fintech market is anticipated to rise at an explosive 19.8% CAGR and reach $332 billion by 2028. Block is currently cheap intrinsically and in comparison to historical multiples due to the drop in stock price. For the meaty details, let’s get into the Business Model, Financials, and Valuation.
Ecosystem Business Model
The two “Ecosystems” that make up Block’s business strategy might be referred to as the organization’s “Twin Engines.” The Cash App is one of these, as is the Square Merchant Ecosystem. Customers can easily be upsold to and cross-sold to by a customer ecosystem of “exceptional items,” which increases transaction volume and can also cut customer acquisition expenses. Let’s look more closely at each of these Ecosystems to see what makes them unique.
- Square Ecosystem
The most recognizable aspect of Blocks’ company, which focuses on assisting small business merchants with their payments and finance, is the Square Ecosystem. Square achieves this by selling point-of-sale (POS) hardware to businesses, which generates income (around 1.75%) from their sales.
In comparison to rival products from companies like European behemoth Adyen (OTCPK: ADYEY, OTCPK: ADYYF), and similar to Zettle, which was purchased by PayPal (PYPL) in 2018, Squares hardware has a significantly superior user interface. Secure Payments, Team Management, Cash Management, Marketing, Gift Cards, Loyalty Programs, and even Website Store Integrations are just a few of the numerous features that come with this POS system.
Application programming interface (API) development by Square makes it simple to integrate with a wide range of platforms. These include social media websites like Facebook, Instagram, and even TikTok, all of which have the potential to increase the number of payments. Numerous Square goods are highly rated by users, as can be seen from the iOS App Store and Amazon reviews. The business has launched Square Loans and On-Demand Delivery in Canada as part of its international expansion. Since Square gathers all of a company’s transactional information, it can use this information to provide specialized credit options that are suited to the needs of the company.
Cash App Ecosystem
This Cash App Ecosystem is a smartphone application that provides access to all financial services in one place. The app boasts 45 million active users each month and has topped the finance category in the app market for the last five years. Before adding Bitcoin Trading, Stock Trading, and even loans, the platform began in 2016 as an immediate deposit and payments service. The power of the “Ecosystem” approach can be shown in the fact that historically, whenever a new product feature has been added, the gross profit per monthly active user has increased. Additionally, the platform will grow more “sticky” the more products a user transacts with.
A “Cashtag,” which is a special identification, can be used to send P2P (Peer to Peer) payments quickly to other Cash App users. Popular social media stars like Kim Kardashian and Miley Cyrus have used this to pay cash to their supporters. Teens even have the option to start using the Cash App with parental or guardian consent. This expands the Total Addressable Market (“TAM”) even further because banks are constantly looking for new methods to connect with younger customers. In this way, Squares Cash App may develop alongside the user and eventually provide them with new financial services.
Featured Image: Megapixl @jamesteohart
