There is always a laundry list of things for investors to worry about. Inflationary fears, the Federal Reserve's next move, and the ongoing pandemic are all on market watchers' minds today. Any negative news can quickly lead to pessimism and could even turn into a full-blown market crash.
No one knows with any certainty what will happen in the short term, so the best course of action we investors can take is to focus on buying great businesses and holding for the long term. This provides valuable protection from the inevitable ups and downs.
Square (SQ 5.04%) is one company that you want to own no matter what the overall market is doing. Read on to find out why.
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Leveling the economic playing field
This leading fintech juggernaut built its business initially aiming to help small merchants accept card transactions in a low-cost, simple, and easy-to-use way. And over the past decade, the software, hardware, and financial services offerings have only expanded as Square delivers new solutions for its customers' growing needs. Complementing the Seller ecosystem is Cash App, Square's personal finance tool, which today has an incredible 70 million annual active users.
Democratizing financial services has been extremely lucrative for this Square, whose stock has skyrocketed more than 22-fold over the past five years. It's no surprise, given that over the past five years, Square's revenue went from $439 million in the second quarter of 2016 to $4.7 billion in the second quarter of 2021, while gross profit jumped 656% during that time. And quarterly gross payment volume, which is a key metric for the business, nearly quadrupled in Q2 2021 compared to Q2 2016.
Founder and CEO Jack Dorsey identified a critical unmet need that the broader financial services industry was failing to serve, and now his company is valued at $117 billion.
Powerful trends for the two-sided ecosystem
Square continues to grow at a rapid pace, with its Seller and Cash App ecosystems registering impressive gross profit gains of 85% and 94%, respectively, in the most recent quarter. Square is starting to attract larger sellers (those that generate at least $125,000 in annualized GPV), as this cohort accounted for 65% of payment volume in Q2. As these customers increase their own sales, the hope is that they'll need more of Square's products and services to run their businesses. This is a strategy that will only further entrench Square into the operations of its merchant base.
On the Cash App side, Square continues driving higher levels of engagement by introducing new features. In addition to sending and receiving money and setting up direct deposit, users can invest in stocks and buy Bitcoin all from the mobile app. And the Cash Card, a debit card linked to users' Cash Apps, has 7 million weekly active users.
What really stands out, however, is Square's ability to integrate these two sides together over time. The company recently announced its acquisition of Afterpay, a leader in the buy now, pay later market, for $29 billion in an all-stock deal. Square plans to incorporate Afterpay's network of merchants and consumers with its own Seller and Cash App ecosystems, a no-brainer strategic move that will give users another payment option. And just recently, Square launched Cash App Pay, a contactless payment method that allows Cash App customers to pay directly at participating Square sellers.
What's this mean for investors?
Square is simply an innovation machine. The company has grown swiftly by offering consumers and businesses financial tools that emphasize elegance and ease of use, something that has traditionally been lacking in the industry. And there is still plenty of expansion left.
Although the stock currently trades at what seems like a steep price of 130 times forward earnings, consider that Wall Street analysts are calling for earnings per share to grow at a compound annual rate of 93% through 2023. It could be worth paying up for such a high-quality business.
Don't worry about the next market crash. Instead, do yourself a favor and consider buying shares of Square.
