The S&P 500 has been unusually volatile this month -- and especially this week, falling as much as 2.9% during Monday's trading only to recapture that decline by Thursday morning. Investors are still consumed by several worries, including the ongoing coronavirus pandemic and potential fallout from the mammoth indebtedness of Chinese property development company China Evergrande Group. Still, you may find yourself wishing you'd bought some of your favorite stocks when they went on sale a few days ago.
There is one particular sector, however, that has been thriving despite the market's turmoil. And if we dig even deeper, a booming business really stands out. Read on to find out why Square (SQ -0.49%) could be the biggest fintech winner of September's market volatility.
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Powerful network effects
By operating a two-sided platform, Square benefits from a competitive advantage known as a network effect. The company's Cash App, with its 40 million monthly active customers, registered $546 million in gross profit in the most recent quarter, up 94% from Q2 2020. And the Seller ecosystem, consisting of millions of merchants, produced gross profit of $585 million, a year-over-year increase of 85%.
This growth isn't surprising given the value proposition Square offers to customers. Cash App allows individuals to set up direct deposit, send money to friends, spend with a debit card, and buy stocks and Bitcoin, all in an easy-to-use interface. Payment volume sent through the Cash App in the second quarter was four times higher than it was just two years ago.
And on the Seller side, Square has a full suite of 30 different products and services ranging from software, hardware, and financial services. During the second quarter, 65% of gross payment volume was derived from what Square calls larger sellers, or those generating greater than $125,000 in annualized GPV.
These two ecosystems place Square in an extremely enviable position. As more users and merchants join the Cash App and Seller groups, respectively, the offering becomes more valuable to all existing participants. And thanks to a new feature, called Cash App Pay, customers are now able to check out both in person and online with their Cash App balances directly at Square merchants. This only strengthens the connection with both sides.
Sizable market opportunity
Square today has very little international exposure, as 85% of its Seller GPV comes from the U.S. Therefore, the chance to grow business in foreign markets is a big opportunity for the company, and that's where the purchase of Afterpay helps. The buy now, pay later leader produces more than 50% of GPV outside the U.S., with a large chunk coming from Australia and New Zealand.
Square's plans to integrate Afterpay's 16.2 million active consumers and 98,000 active merchants with the Cash App and Seller ecosystems will only bolster engagement, volume, and ultimately revenue. Additionally, because 85% of Afterpay's transactions are done online, Square gains more exposure to the burgeoning e-commerce space.
Even before this acquisition, Square's management believed the combined global revenue opportunity between Sellers and Cash App was estimated at $160 billion. That's still a long way from trailing-12-month sales of $15.9 billion. Entering other markets and introducing different products and services will certainly help the company reach new heights.
Square's ability to continuously innovate and be ahead of the curve when it comes to its users' financial needs is why the stock has skyrocketed almost 20-fold since the company went public nearly six years ago. Take advantage of the stock market's recent volatility and consider buying shares in this flourishing fintech pioneer. Many years from now, you'll look back and be very glad you did.
