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Square's $160 Billion Market Opportunity and How It Plans to Grow Its Share

By Matthew Frankel, CFP® and Brian Withers – Updated Sep 3, 2021 at 2:12PM

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Here's where Square thinks its business could go, and how it plans to take it there.

Square (SQ -1.43%) has grown from a niche payment processor to a fintech powerhouse with a $120 billion valuation in little more than a decade in existence. However, management thinks Square is just getting started. In this Fool Live video clip, recorded on Aug. 23, Fool.com contributor Brian Withers discusses Square's addressable market opportunity and the company's growth strategy. 

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Brian Withers: I wanted to cover the growth initiatives and how Square is looking at growing. Usually, that's listed in the 10-K, and for whatever reason, they didn't talk about that. I guess you're not really required to talk about that in your 10-K, so what I'm going to pull up is a document of what Square had what they call an investor day. Where they come, and they talk about here are our growth plans, here's our business makeup, here's how we're thinking about the business. They often invite the key analysts that cover the company, and they get to ask questions. Sometimes companies do this once a year, sometimes they do it every other year. Companies like Apple and Google, and Microsoft are way beyond doing these things. Amazon, those kinds of things wouldn't do these because they really don't need to.

Let me take you and show you some of the slides from the investor presentation. Not surprisingly, they talk about the two significant. The first slide that they opened with is, hey, we got two significant ecosystems. Which we talked about earlier. You can see how the seller piece of this is the blue. This is 2015-2019. This was their original business and how it's grown, and you can see how quickly the Cash App has become a large part of the business. I wish I had 2020 on here because it was even bigger through 2020 because the Cash App took off in 2020, whereas the seller ecosystem with all the small businesses they have, didn't grow as fast. It did grow, but it didn't grow as fast. You can see like Matt was talking about, a lot of these numbers are just showing you the gross profit. It eliminates the numbers of Bitcoin, it gives you a good feel about how these businesses are contributing to fund the overall company operations. I really like how they get to the punch line in slide 5 right away.

They talk about these two ecosystems, and they say the salary ecosystem is $100 billion market opportunity, and the cash app for these individuals here has a $60 billion market opportunity. They're in, down here, the single-digit penetration of these opportunities. They talk a little bit about where they are with these and how they're going to grow. When they look at the seller ecosystem, they say, well, there's about 20 million businesses in the U.S. that have $6 trillion in gross receipts. Any time you look at a total addressable market, this is what you get. If every single business in the U.S. used Square for everything, this is the market opportunity. The company will never ever get here, and if they get to 10% or 15%, that would be fantastic.

They break it down, I really like how they split this out. You saw some of that when Matt was going through transactions and subscription fees. You can see how they have this focus, so they had this dialed in as they know where they're going and what opportunity they have in the U.S. [laughs] It was funny, Matt, when I was looking through these slides, I expected a little bit more insightfulness into how they were growing. But really, this is it. They say the $100 billion market opportunity, $85 billion in the U.S., it's really split out between $16 billion in transaction profits from the current international markets that they're in. By the way, there's this box called new products and use cases. That's it. That's their growth strategy. This is the medium term. Long term, I think I could have put this slide together, new markets and expand further upmarket. Matt talked a little bit about his $1.5 million wing business. Certainly, if you're running a restaurant that's cashing in $1.5 million in receipts per year, you're probably going to rely on some technology to take payments, manage schedules, do hiring and firing, you want to pay your employees not in cash, those things. That's a great business that Matt brought up.

Is a great target example of somebody you would want in the Square ecosystem. Here was a little bit of the seller size. You can see on the left-hand side, this is the different sizes of sellers given the payment volume over the year and they have the U.S. sellers split out. So they know how many are in each market and then this is where they came up with that $6 trillion market number. They are trying to move upmarket is basically what this slide says. Then they switch over to Cash App. That was the seller ecosystem, the Cash App, pretty simple, $9 trillion in addressable market in the U.S. alone. There's $4 trillion in sending, so think about moving money around, $2 trillion in spending and $3 trillion in investing. Pretty simple. They see, now it breaks down into the, what's the profit opportunity in these three buckets for them and they think it's about $60 billion and that's just in the U.S., that's not even before you go internationally for the countries that Square's in. Here's the brilliant slide. New products and use cases, medium-term, long-term new markets. That's their growth strategy right there.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP owns shares of Apple and Square and has the following options: short November 2021 $140 calls on Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Bitcoin, Microsoft, and Square. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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