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Here's Why Square Could Be a Big Winner of the Reopening

By Matthew Frankel, CFP® and Brian Withers - Jun 26, 2021 at 9:06AM

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Payment processors all benefit from a strong economy, but Square could have a big advantage.

With consumer spending exceeding pre-pandemic levels as we head into summer, payment processors could be a big beneficiary. But as contributor Brian Withers explains in this Fool Live clip, recorded on June 14, Square's (SQ -1.40%) large base of brick-and-mortar merchants could put it in a great position to capitalize on the strong economy.  

Brian Withers: I am going to talk about Square. With shoppers headed back to brick-and-mortar retailers, Square's seller segment should recover at a faster pace then, potentially. If you're not familiar with Square, it's got two separate segments or growth drivers. There's a seller ecosystem here at the top which focuses on think of small businesses or people in marketplaces selling things, and then you have this Cash App, which is the person-to-person investing app, as well as you can buy stock, you can buy Bitcoin (BTC -0.57%), that kind of thing. In 2019, going back to pre-coronavirus, the seller segment grew 30% year-over-year, whereas the Cash App was more than doubling year-over-year. You can look at the size of these two businesses, the gross profit for the seller ecosystem was, what? Two and a half times as big? But now they're about the same. In fact, Cash App is this last quarter, exceeded the seller ecosystem. But the seller ecosystem isn't resting on its laurels either. This is the highest record gross profit in Q1. Over the last few quarters, the sequential increase has accelerated, as well as it posted a 32% year-over-year gain over this next quarter. You can see that it gained as January, February, March probably tailed off. Then April, May, and June it saw a negative growth, and it's recovered pretty well. Certainly, it was seeing 30% year-over-year growth before the coronavirus. There's some growth drivers for the seller ecosystem that are more prominent than even before the coronavirus. Taking a look at what Amrita Ahuja, Chief Financial Officer said in the last quarter as three growth drivers, international, omnichannel and mid-market. International; their seller segment was up 80% year-over-year. But that's still only 8 percent of the overall gross profit for this segment, so a huge growth driver there. Omnichannel; they have been able to put tools in place, what they call card-not-present. Over-the-phone sales or online sales and online volume growth at over 50% again. Much faster than the overall seller growth. Then mid-market sellers; just mid-market right here greater than $500,000 gross payment volume over the course of a year. These are big sellers that they are catering to. The growth from them was 30%. Those sellers are growing at two times the rate of the overall sellers' business. There's a lots of good things going on for the seller ecosystem, and these three growth drivers are continued to going to propel this business to get even bigger especially as consumers get back into brick-and-mortar.

Brian Withers owns shares of Square. Matthew Frankel, CFP owns shares of Square. The Motley Fool owns shares of and recommends Bitcoin and Square. The Motley Fool has a disclosure policy.

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