Square's name change to Block (SQ +3.77%) attracted significant attention. The company became best known for its Square payments ecosystem and Cash App, its peer-to-peer payments app. Now, CEO Jack Dorsey rejects the company's label as a fintech stock and wants investors to know it as an "ecosystem."
Block most certainly thrives on its ecosystem. However, its primary businesses have not slowed down and remain in an expansion mode that might drive the focus to a currency besides Bitcoin.
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Block's evolving ecosystem
At Block's first investor day in years, Dorsey openly rejected the label of his enterprise as just a payments company. CFO Amrita Ahuja went further, telling CNBC such a description is "like calling Amazon a bookseller."
Certainly, Block has expanded well beyond the Square ecosystem. It now includes Cash App, Tidal, a music-streaming business once owned by Jay-Z, and Weebly, a website-development app.
But the enterprise that has probably gained the most attention recently is TBD, a business based on Bitcoin (BTC 0.29%). On the surface, Block appears most heavily oriented toward Bitcoin. Jack Dorsey has made the claim that it will eventually replace government-backed currencies. Moreover, Bitcoin has technically become the company's largest revenue source.
CRYPTO: BTC
Key Data Points
Why Block is still (mostly) Square and Cash app
However, the Bitcoin emphasis looks like an overstated distraction upon closer examination. After subtracting Bitcoin costs, the company retains only about 2.5% of that revenue, dramatically reducing Bitcoin's share of Block's true revenue stream.
Furthermore, the focus on Bitcoin may have played into rival PayPal's hands. PayPal offers more cryptocurrency-based options by facilitating trading in Ethereum, Litecoin, and Bitcoin Cash, in addition to Bitcoin, on its competing Venmo app.
Additionally, no fintech has ever succeeded by making customers change currencies. Hence, investors should expect the company's customers to use their country's form of money for a long time to come.
The currency Block shareholders should really watch
Through such government currencies, Block generates nearly all of the company's revenue between Square and Cash App. Utilizing these ecosystems, the company continues to enlarge its footprint within the developed world. Moreover, much of that expansion will happen through more frequent use of one specific government currency, the euro.
NYSE: SQ
Key Data Points
Last spring, Block launched its Square ecosystem in its first eurozone country, the Republic of Ireland. It followed this up by expanding to France last fall and Spain early this year, both of which also use the euro.
Furthermore, the Cash App part of the business appears poised to drive the eurozone expansion. Officially, Cash App is only available in the U.S. and U.K. However, Block bought Spain-based Verse Technologies in 2020, a peer-to-peer payments company. Verse operates throughout the eurozone, a situation that could lead to an eventual move by Block to make the Square ecosystem available across the European Union.
Stay focused on Square and Cash App
Despite the CEO's emphasis on Bitcoin, investors should not only focus on Square and Cash App but also look to the euro as one of Block's leading currencies. While Block could become the leader in serving consumers and businesses that more frequently utilize Bitcoin, Square and Cash App continue to lead the way.
Additionally, its expansion into Europe is at the forefront right now as it drives growth in Block's primary businesses. Hence, as management talks the Bitcoin talk, look for the fintech stock to walk a path paved by the euro.
