Square (NYSE:SQ) has grown into much more than a payment processing company, and there's still tons of room for growth.
In this clip, Industry Focus: Financials host Michael Douglass and financials specialist Matt Frankel discuss why Square could be an excellent stock to own for years to come.
A full transcript follows the video.
This video was recorded on May 16, 2018.
Michael Douglass: Square is our third one, which is ticker symbol SQ.
Matt Frankel: Square is, in many ways, similar to PayPal. It's about one-fifth of the market cap. In terms of payment volume, it's a lot smaller. It's about one-eighth of PayPal's payment volume right now. While PayPal started out focusing on consumers paying businesses, Square is more of a small business-centered company. You can't walk down a craft market in America right now without everybody taking credit cards with Square payment readers.
But, they're turning into so much more than that. They're really building, they call it omnichannel commerce. It's kind of a whole one-stop payment ecosystem for businesses, consumers. For example, they have a Square Capital platform that lends to small businesses, the Square Cash app, which is kind of what we're talking about with the war on cash. Their peer-to-peer payment app is the No. 1 app in the Apple App Store. So, they really transformed themselves from just the small business payment company to a small business and consumer ecosystem of payments.
Other integrated features are what they're going for, with their Caviar food delivery app. They just acquired Weebly, which allows people to make their own websites, integrating that into their process so their customers don't have to go elsewhere to build their own e-commerce sites. Just, a lot of potential, and it's still within the early stages of figuring out how much of the business environment they could capture.
Douglass: Yeah. For me, I'm a Square shareholder personally because of the optionality. You look at Caviar, it's tiny compared to a GrubHub. It's distinctly possible that GrubHub or one of the various other food ordering services will continue to, pardon the pun, eat their lunch, because, you know, Caviar has a single-digit market share. But, long-term, maybe it can grow. Maybe it can differentiate. Maybe it can find some way to really succeed, particularly if they use it as an omni-channel, to use their terminology, cross-sell opportunity.
They might charge a certain percentage to merchants who aren't using other Square services, but if they are using other Square services, maybe Caviar is free, maybe it's bundled, maybe it's a lesser percentage of revenue on the sold food that they're charging. So, there's a lot of opportunity, I think, if Square can really, really make entrepreneurship easy. And that's really what their goal is.
Frankel: Another thing with Square is, out of the three stocks we're talking about, they're the ones who are really embracing the whole cryptocurrency trend -- more so than the other two, anyway. You can now buy Bitcoin through the Square Cash app, if you talk about the ultimate war on cash. It's kind of still a small part of Square's business, but it's getting there, and it could become a big part if it's integrated into their small business solutions, whereas you can hold Bitcoin in Square Cash and use it at Square payment terminals, that could be a game-changer for the cryptocurrency world.
Douglass: Yeah, it's kind of a weird thing. It feels very different from pretty much everything else that Square is doing. But, again, this is a management that has unhesitatingly diversified, taken on opportunities. I think, in a lot of ways, they're just throwing a bunch of things out there and seeing what works. And that can be a bad strategy when it doesn't have a master plan behind it and an integrated experience that they're going for, or if it's just out of desperation. But Square has just been growing impressively. I think this is management's attempts to say, "OK, how do we take that growth, better monetize it, and build out that platform further and further, and stay ahead of the competition?" And thus far, Square really has done a good job of that.
Frankel: Yeah. This was the thesis on IBM a long time ago, in that the more parts of a company's business they rely on you for, the higher the cost of switching is. So, Square is turning into a very sticky business, to borrow a Warren Buffett term.