As the broader market continues to creep back up to pre-pandemic levels, some stocks have already surpassed their pre-COVID-19 prices, including Square (SQ 0.78%).
Square may not be unique in its services, but it doesn't have too many competitors that mirror its specific platform. What's more, its eye is on the ball, and it keeps launching new products to meet the demands of its customers, and even developing products customers didn't know they needed.
But is Square the best fintech stock? Let's find out.
Image source: Getty Images.
All the bells and whistles
Fintech, or financial technology, covers a broad range that can include traditional banks like Goldman Sachs that are entering the tech space, as well as tech-focused startups.
Square is a digital payment processing company, but it's so much more than that. Its mission is economic empowerment, and it aims to simplify small business operations by providing easy-to-use services.
The company started out making its signature card reader, which attaches to a smartphone so any small business or entrepreneur can easily take payments without needing bulky hardware. But it has moved into a host of other small-business solutions for online storefronts and e-commerce-only businesses, such as small terminals, contactless payments, online payments, and digital systems to run operations such as curbside pickup.
It's also expanded with its person-to-person Cash App and with Square Capital, a financial services product for small businesses -- all within the same system that powers many of their other applications, for a smooth and simple process.
A competitive field
Fintech is growing as more business go online and need the infrastructure to make a smooth leap or create a completely digital experience, and there are lots of smaller fintechs that cater to the needs of small businesses. While Square faces that competition, one of its strengths is its fully equipped ecosystem, which makes it easy for clients to meet all their needs in one place. It has pivoted from a payment orchestrator into a full-service small business developer, which gives it an edge.
It's also building up a completely separate ecosystem for its Cash App to branch into new and lucrative territory, and the Cash App has been the top finance tool in the U.S. App Store for two years running.
Square's strongest competition probably comes from PayPal on the payments and cash side and Shopify on the services side. PayPal offers many of the same fundamental services as Square, such as payment processing, credit card terminals, and cash payments. That's its bread and butter. It has a much larger share of the pie, with $191 billion in total payment volume in the first quarter vs. Square's $25.7 billion.It also has 325 million active users and strong partner relationships with many large companies, such as eBay. But it doesn't offer the same suite of small business services as Square. Shopify is a one-stop online business-maker that takes care of everything for an e-commerce store for a monthly fee. It doesn't work for storefronts, though, and doesn't offer the same payment solutions that Square does.
In very recent news, both Visa and Mastercard have started offering small-business resource programs aimed at helping businesses rebuild after coronavirus closures. These types of programs force Square to stay on top of its game, but they probably don't offer much of a threat to its operations. However, it also highlights the ease with which other companies can encroach on Square's base model.
Why there's so much growth ahead
While Square has garnered a lot of attention and seen its stock soar more than 300% over the past five years, it still has lots of room to grow. It serves less than 3% of the $100 billion addressable sellers market and less than 2% of the addressable $60 billion cash app market.Even PayPal is still growing users by double digits, which leaves a lot of room for Square to catch up.
Square has almost doubled its seller user base over the past five years, and more than doubled its gross profit per seller.It has seen a deceleration of spending since COVID-19 but has stepped up its services for sellers to help keep them afloat during this time.
Fintech is a wide-open space with many great investment options. I'm not sure one can quantify one as "the best," but Square is definitely up there in the running and a great choice to grow your money.
