Square (SQ) is the classic story of a start-up disrupting a well-established business sector, in this case finance and credit. It targets millennials and Gen Z, and its strategy has been successful so far, as it has become a serious challenger to the old-world financial order. The stock has barely moved in 2021 but it is expected to post massive growth ahead, and could be a strong bet in the future.
SQ is a pioneer in the fintech space, operating in three major segments. Square, one of its products, helps businesses, majorly small retailers, and individuals engage in the digital economy. Sellers use SQ to reach buyers online and in person, to handle their business, and to close transactions. Overall, Square is pretty similar to Shopify (SHOP).
Cash App, its second product, started off as a peer-to-peer mobile payments network but has since evolved into a personal finance app which now offers banking, investment and trading options as well.
Tidal, the third major product (Square acquired a majority stake in it for $302 million from music mogul Jay-Z in March 2021) is a global music and entertainment platform for artists.
SQ stock has had a very average 2021 so far. The stock opened the year at $241 and is trading at $254.50 at the time of this article. However, the company’s aggressive acquisitions and product line might see this change in 2022.
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On Top of the Game
SQ has always been good at recognizing trends (or starting them) in the fintech space. If it hasn’t been able to build it in-house, it has acquired it. How the Tidal buyout plays out remains to be seen.
The latest example of this is the company’s announcement about acquiring AfterPay (AFTPF) for $29 billion in August 2021. AfterPay is a pioneer in the Buy Now Pay Later (BNPL) space, and this is one of fintech’s fastest-growing businesses. The deal will create a transactions giant that is capable of taking on the world’s largest banks and fintech firms globally.
Amazon (AMZN) and Shopify have tied up with Affirm (AFFRM) Holdings to offer the same service to their customers, while PayPal (PYPL) launched its own BNPL service in 2020.
Getting with TikTok
TikTok is one of the hottest social networks in the world right now, and businesses are looking to tap into its huge user base for potential customers. Getting in on the game, SQ announced its new integration with TikTok in the last week of September. This will “make it easy for sellers of all types and sizes to reach new customers and grow their sales online.”
TikTok is going down the same road as Facebook (FB) Shops, which has seen remarkable success since its launch in May 2020, at the height of the pandemic.
Betting on Bitcoin
On October 15, SQ CEO Jack Dorsey tweeted, “Square is considering building a Bitcoin mining system based on custom silicon and open source for individuals and businesses worldwide. If we do this, we’d follow our hardware wallet model: build in the open in collaboration with the community.”
Dorsey is the CEO of both Twitter and of Square.
SQ already has a couple of bitcoin-based projects underway. In July this year, Dorsey announced on Twitter (TWTR), again, that “Square is creating a new business (joining Seller, Cash App, & Tidal) focused on building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services. Our primary focus is #Bitcoin. Its name is TBD.”
SQ’s Hardware Lead, Jesse Dorogusker, had also tweeted in July that the company will be going ahead with a hardware wallet for Bitcoin. He said, “We have decided to build a hardware wallet and service to make bitcoin custody more mainstream.”
All of these projects are important because there is an extremely high chance that U.S. regulators will allow a futures-based exchange-traded fund (ETF) which will attract more people to invest in cryptocurrencies. Bloomberg News reported that the U.S. SEC (Securities and Exchange Commission) might allow a Bitcoin (BTC-USD) futures ETF to begin trading this week. Cryptocurrency flagship Bitcoin topped $60,000 on October 15, the first time in six months, after the Chinese government started cracking down on crypto.
SQ had also purchased over $200 million worth of Bitcoin in the fourth quarter of 2020 and the first quarter of 2021. It makes sense for SQ to double down on its Bitcoin bet.
Financials and Analyst Views
SQ delivered a gross profit of $1.14 billion, up 91% year over year, and 57% on a two-year compound annual growth rate (CAGR) basis. Its seller segment accounted for $586 million in gross profit, up 85% year over year, and its Cash App ecosystem delivered gross profit of $546 million, an increase of 94% year over year.
Tipranks’ Stock Forecast Tool indicates 18 out of 23 analysts have given SQ a Buy rating while four have a Hold and only one analyst has a Sell rating on the stock. The average Square price target is $316.67, which indicates an upside of 24.4% from its last traded price of $254.50. The highest forecast for SQ is $380.
When one looks at SQ’s numbers and the moves it has made in 2021 so far, one gets the feeling that the company is setting up the foundation for a boom period in the future. Investors might want to seriously consider this stock.
Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article.
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