Please ensure Javascript is enabled for purposes of website accessibility

Why I'll Never Sell Square Stock

By Travis Hoium - Apr 12, 2021 at 8:14AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The tech company that began as a digital payments platform could be the future of finance.

One of the great growth stocks over the last half-decade has been Square (SQ 9.50%), the electronic payments company. It has become a go-to payment processor for businesses large and small, and has built a suite of products to make businesses easier to run and financial transactions easier for consumers. 

What's incredible about the company today is that it's just scratching the surface of its potential.

Square reader on a bakery counter.

Image source: Square.

Square's booming business

Processing payments has always been the core of Square's business, and its transactions continue to grow. Gross payment volume was $112.3 billion in 2020, up 6% from a year ago despite a sharp decline in in-person transactions. 

Cash App business transactions grew as a percentage of payment volume too, hitting 9% in Q3 and 8% in Q4, more than double their share a year earlier. The Cash App has become a key growth product as well. The revenues it generated grew by up 502% to $2.17 billion in the fourth quarter, while its gross profit rose 162% to $377 million. 

There are essentially two ecosystems being built at Square. One is a seller ecosystem of payment processing services, software tools, and lending that makes running a business easier. The other is for consumers, and combines everything from payment processing to investing into one app. It's the combination of these two ecosystems that makes Square a great growth stock to hold for the long term. 

The emerging digital wallet

Ultimately, Square's largest growth driver will be consumers using the Cash App to fulfill more and more of their financial services needs. It started as a peer-to-peer transaction app, but it can now be the center of your digital financial universe. Consumers can use it to buy and sell stocks, deposit paychecks, buy Bitcoin, and pay businesses for goods and services. 

Electronic transactions have been around for a long time, but there was often an intermediary between the parties involved. A business that takes credit cards or Apple Pay goes through Visa (V 1.05%) or Mastercard (MA 1.97%) and an intermediary bank to complete the transactions. Most of the approximately 3% fee paid on these transactions goes to the credit card company or a bank, with a company like Square earning about 1%. But Square is trying to offer services to both sides of the transaction. 

The idea is to be the center of both businesses' and consumers' finances. If it can succeed with this strategy and build scale, it can disrupt banking and the transaction industry, reducing fees for businesses while increasing its own revenue in the process. 

Square has made finance easy

What's remarkable is how much easier Square has made financial matters. A few clicks and you can invest in stocks, do your banking, and even manage your taxes. The company's financial results speak for themselves. 

SQ Revenue (TTM) Chart

SQ Revenue (TTM) data by YCharts

Square is still near the beginning of its growth cycle, and as it expands its services and its scale, its potential is almost unlimited. That's why this is a stock I'll never sell

Travis Hoium owns shares of Apple, Mastercard, Square, and Visa. The Motley Fool owns shares of and recommends Apple, Bitcoin, Mastercard, Square, and Visa. The Motley Fool recommends the following options: long March 2023 $120.0 calls on Apple and short March 2023 $130.0 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
$88.84 (9.50%) $7.71
Apple Inc. Stock Quote
Apple Inc.
$169.24 (2.62%) $4.32
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$353.38 (1.97%) $6.84
Visa Inc. Stock Quote
Visa Inc.
$212.10 (1.05%) $2.21
Bitcoin Stock Quote
$24,555.00 (250.24%) $599.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.