Two thriving ecosystems are driving this explosion
Brian Withers (SQ): Square has come a long way since it started by helping sellers collect in-person credit card payments with its plug-in device for mobile phones. Today, the company has two thriving ecosystems that drive its growth. The seller segment has become a rich suite of 30 connected applications and services, but its budding Cash App business is no slouch either. The Cash App enables person-to-person payments, banking-like services, and the ability to buy or sell stocks and Bitcoin (BTC 1.57%).
Both of these ecosystems are flourishing today. Below is a table of recent results showing its tremendous year-over-year growth. The Cash App business surpassed the seller segment in overall gross profit dollars for the first time in its history. It's not surprising given that this segment has reported triple-digit percentage growth for the last five quarters. The seller segment saw some headwinds during the pandemic as brick-and-mortar sellers saw decreased traffic and had to quickly create omnichannel operations. But as the economy opens back up, these sellers should see increased traffic and hopefully, increased sales.
|
Metrics |
Q1 FY2020 |
Q4 FY2020 |
Q1 FY2021 |
QoQ change |
YoY change |
|---|---|---|---|---|---|
|
Seller gross profit |
$356 million |
$427 million |
$468 million |
10% |
32% |
|
Cash App gross profit |
$183 million |
$377 million |
$495 million |
31% |
171% |
|
Overall gross profit |
$539 million |
$804 million |
$964 million |
20% |
79% |
Note: Revenue from Bitcoin sales tends to skew revenue growth numbers so Square’s management team likes to focus on ecosystem gross profit instead. Source: Company shareholder letter.
The company has continually improved its platform for sellers. Recently, the company launched Square messages, a service that makes it easy for sellers to communicate with their customers. Additionally, it’s been instrumental in facilitating the PPP (Paycheck Protection Program) for over $500 million in loans to 57,000 small businesses. Some small businesses may not survive the pandemic, but Square is seeing its mid-market sellers thrive. Those with more than $500,000 in annual sales grew at a 43% year-over-year rate in the most recent quarter, twice as fast as smaller sellers.
Square is set up to be there for its sellers as they start to see the benefits as more consumers get out of the house. For investors, this stock has been explosive, almost doubling in the past year. But, its run is far from over. Get on board this winning growth company with a few shares today and your future self will thank you.
