Square (SQ +0.39%) stock has had quite a run, gaining 260% year to date and over 500% in the past three years. The company has reported mixed results during the pandemic, but overall, it continues to post high growth. Where will things stand five years from now?
Small business solutions from the ground up
Square is one of the best-known fintech, or financial technology, companies. Despite the emphasis on technology, Square isn't only focused on digital. Its first product was a small card reader that made it possible for brick-and-mortar store owners to easily swipe credit cards. Since then, it has launched a large suite of small business solutions to help business owners get started and grow. Its credo is "economic empowerment," and it aims to do that through its range of offerings, including payment processing, curbside pickup, and order management.
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Square considers its service offerings an ecosystem, and it has a separate ecosystem for peer-to-peer payments in Cash App, which allows users to easily send and accept money, pay for goods, and trade cryptocurrency, among other things.
Sales and volume growth have been astronomical with revenue up 148% year over year in the third quarter. Most of that came from Cash App as its revenue and gross profit surged 574% and 212%, respectively.
The seller ecosystem didn't fare as well since small businesses suffered through lockdowns and social distancing. Revenue increased 5% year over year with a 12% increase in gross profit. Earnings were positive for the third quarter, an improvement from the previous quarter's loss.
Expanding and offering more
Square is in touch with shopping and business trends, and it mobilized to offer services that cater to shopping during the pandemic such as curbside pickup. In the third quarter, the company also released instant payments and on-demand pay, features that help small business owners pay their employees.
The stock-trading feature in Cash App had the fastest adoption of any of its services, and PC Magazine rated Cash App the best mobile payment service for buying stocks and cryptocurrency. Rival PayPal recently launched its own version.
CEO Jack Dorsey noted customers can find stocks based on industry and performance, and these are features that, along with its ease of use and integration with Cash App, point to a bright future for Square's trading platform. Beyond the digital wallet and online brokerage, the company has its eyes on other areas of finance. For example, the stock-trading feature allows for automatic investing, and CFO Amrita Ahuja said Square is looking to bring in new customers by launching additional services.
A major recent announcement was the acquisition of Credit Karma's tax business, a do-it-yourself tax platform. Brian Grassadonia, Cash App Lead, noted in a press release that the company is "constantly looking for ways to redefine our customers' relationship with money by making it more relatable, instantly available, and universally accessible." Management noted that the number of Americans who file their own taxes every year is growing with about 80 million DIY tax payers. Over two million used Credit Karma in 2019 with an average refund of $2,000. If that money ends up in a Cash App account, that's a lot more volume for the company.
Where is Square going?
The ability to launch new products to meet current trends is definitely a feature of a company that can keep growing. As fast as sales have soared, Square has nowhere near the kind of revenue that PayPal generates, and it should continue to post high sales growth going forward. Earnings should stabilize as well once the economy recovers.
And as much as shopping has turned digital, the new wave of adoption this year has required a marriage of physical and digital for a complete assortment of purchasing options. Square is right in that sweet spot.
So as businesses reopen, the seller ecosystem should begin to pick up. In the near term, Cash App usage may not grow as fast as it did during the lockdowns, but the company's investments in new features will attract new users and allow it to serve a wider swath of each customer's financial needs, growing revenue in the process.
