How Much of Square's 20%-Plus Drop Last Week Was Due to 1 C-Suite Exit?

In the war on cash, digital payments company Square (SQ 1.11%) has been a fast-growing innovator, and further rapid growth has long been priced into its stock. Also underlying informed investors' opinions of the company: respect for its leadership. Which is why, in a week when the macroeconomic picture caused U.S. investors to reassess just how optimistic their wider growth expectations might have been, Square specifically took an extra hit on word that its CFO, Sarah Friar, was decamping to take the CEO job at social network Nextdoor.

In this segment from Motley Fool Money, host Chris Hill and senior analysts Ron Gross, David Kretzmann, and Jason Moser talk about the opportunities ahead for Square, who CEO Jack Dorsey will pick to fill Friar's shoes, and more.

A full transcript follows the video.

This video was recorded on Oct. 12, 2018.

Chris Hill: Shares of Square fell more than 20% this week. Some of that was the market, Jason. Some of it was also due to Sarah Friar, who is the CFO at Square. She announced she is leaving at the end of the year.

Jason Moser: I'm in communication with the investor relations department at Square. I was trying to work out an interview with Sarah. And they were like, "You know, she may be a little bit busy." Well, now I get it.

Ron Gross: [laughs] She's very busy.

Moser: [laughs] Yeah. It was a bit of a one-two punch there. You understand when the market pulls back, a stock like Square is going to pull back even more because there's been a lot of growth priced into that stock price. Losing Sarah Friar is not good. You can't sit there and cupcake it, she really is the most public face for the company, I think even more so than Jack Dorsey.

But I think it's important to really recognize what Square is. It's not just about cheap swipe fees for small businesses around the country and really around the world. You've got Square Capital, you've got the Cash app, and all this other software that they're building out and offering for retail and restaurants and whatnot. This becomes really -- I know we use this word a lot, but it works here -- an ecosystem. And it matters. As you get these merchants using this Square hardware and software, you see some switching costs start to develop there. I think that they are in the middle of growing out something special here.

If you look at Square, where they are today vs. where PayPal is today, through the second quarter of this year, the gross payments volume that has traveled through Square's networks is just under $40 billion. The gross payments volume that's traveled through PayPal's network is close to $275 billion. That gives you a very good idea of the opportunity that's in front of Square. There's plenty of growth to be had there. We also know with PayPal's business model, there's a good blueprint there as to how profitable Square can be if they keep doing what they're doing.

My guess is that Jack is going to be very thoughtful in how he fills this role to make sure that he gets someone in there to keep this company on the path that they're on.

David Kretzmann: No doubt, these are big shoes to fill. She's done an incredible job since she joined Square six years ago in 2012. I think there will be more scrutiny from investors and Wall Street on how Square goes about this finding a replacement for her. Still, Jack Dorsey is CEO at Twitter and Square. Sarah, like Jason mentioned, has really been the public face of Square, and almost operating more as a co-CEO alongside Dorsey. Who they find to replace her will be important.

Gross: You had me at cupcake.