The outcome of the 2020 U.S. presidential election could potentially have a profound effect on many publicly traded companies. The winning candidate has some influence over how many companies operate domestically as well as their international prospects.
One company on a path toward expansion regardless of the election outcome is Square (NYSE:SQ). The fintech industry has prospered under both Democratic and Republican presidents. Moreover, trends both within and beyond the company should bolster Square stock regardless of who is president for the next four years.
Society is increasingly cashless
Square plays well into one trend: the growing cashless society. Whether the public will eventually abandon cash altogether is a matter of debate. Nonetheless, an ever-growing percentage of consumers and businesses are collecting and spending money electronically in increasing amounts.
Square got its start by playing a central role in this trend. It started by allowing consumers with something to sell to process credit card transactions using their smartphones. This opened up credit card collections to sole proprietorships and even individuals.
Indeed, society has used ATMs, direct deposits, and credit cards for decades. But Square pioneered developing options to replace and/or combine those elements in convenient and easy-to-use ways. With the rise of e-commerce, electronic payment volumes have risen exponentially. Thanks to Square and its peers, credit and debit cards are not the only option for electronic payments. With Square's CashApp, consumers can collect money and pay bills and everyday expenses. CashApp even allowed consumers to receive their U.S. government stimulus payments more directly earlier this year.
Square is changing finance
In recent years, Square has expanded its ecosystem considerably. Increased comfort with financial consolidation has made this possible. In 1999, Congress repealed the Glass-Steagall Act, which previously forced the separation of commercial and investment banking. Investors should note that this repeal has lasted through three different presidents and a financial crisis.
This changing attitude toward combining commercial and investment banking played into Square's hands. In the past, one might turn to a Bank of America for basic banking services and loans. For credit card transactions, consumers may have relied on a company like Visa. Businesses would also use an Automatic Data Processing (ADP) for payroll management and an NCR to collect and manage cash.
Today, Square offers most of these services within one ecosystem. Earlier this year, it also received approval from the Federal Deposit Insurance Corp. to charter a bank. Once this bank opens, individuals or businesses can conduct almost all transactions within Square's ecosystem if they so choose.
Few geopolitical concerns for Square management
Investors also have to remember that Square operates only in five countries: Australia, Canada, Japan, the U.K., and the U.S. These are high-income countries in the developed world that have fostered deep relationships going back decades, with no serious geopolitical tensions among one another. Since Square does not currently operate in China, Russia, or the Middle East, the company will probably not have to worry about such tensions regardless of who is president.
Nor should the election outcome affect its immediate expansion plans. Square purchased Verse, a Spain-based start-up, in June, and operates an office in Ireland.
Since both countries use the euro, this hints at a possible expansion into the eurozone. Such a move, which would take Square into as many as 19 more countries, would likely not upset either President Donald Trump or Democratic presidential candidate Joe Biden.
From an investment standpoint, such an action will probably bring more years of rapid growth. In the most recent quarter, Square increased its revenue by 64% year over year and gross profit by 28%. Lower activity due to the coronavirus meant a loss of $11 million in that quarter. Nonetheless, this will likely not persist as analysts predict year-over-year profit growth of almost 115% in fiscal 2021.
Given these anticipated profit increases, Square investors should cash in regardless of who controls the White House come Jan. 20, 2021.