Investors have numerous options when it comes to investment platforms. Those who have invested in index funds or traded stocks for several years may turn to a Charles Schwab or a Fidelity. Younger investors often gravitate toward Robinhood, while more cryptocurrency-oriented investors may prefer Coinbase.
However, when it comes to the most trusted platform, it will likely surprise many that it is Cash App, the digital wallet operated by its parent company, Block (SQ +3.74%). But does that leadership make the former Square, Inc. an excellent investment? Let's take a closer look.
Assessing Cash App
According to The Motley Fool's Generational Investing Tools survey, 38% of respondents use Cash App for investing purposes, and it is particularly profitable among Gen Z and millennial investors. Fifty-four percent of millennials and 50% of Gen Z preferred the digital wallet.
Even among baby boomers, Cash App remains the most popular choice for investing, with 15% choosing Cash App. Nonetheless, it shows Cash App's success in making its app user-friendly for all ages.
That success also appears in its user and inflow numbers. Monthly transacting activities rose to 55 million in September, an 11% yearly increase. These customers brought in $62 billion in inflows, 21% more than during the same time last year.
Investing in Cash App
Moreover, investors can buy into this story -- if they are also willing to assess the Square ecosystem and the performance of Bitcoin, as the stock often rises and falls with the trajectory of the cryptocurrency.
Indeed, Block reported about $2.9 billion in gross profit for Cash App in the first nine months of 2023, a 37% increase from the same period in 2022, overtaking Square as Block's largest source of gross profit.
Still, Cash App made up only 53% of the company's $5.5 billion in gross profits. Nearly all of the remainder came from Square. However, Square's portion grew by only 16% over the same timeframe.
The company's net loss for the first three quarters of 2023 was $168 million, down from $427 million in the same year-ago period. But with only $29 million of that loss occurring in the third quarter, the company could turn profitable in the foreseeable future.
NYSE: SQ
Key Data Points
Still, Block has risen by less than 10% this year. This includes an increase of around 75% since its October low, paralleling a rise in Bitcoin prices. Additionally, investors might have an unexpected bargain. About 43% of Block's revenue is Bitcoin purchases, which appear scantly in gross profits. But even when including that Bitcoin revenue, the price-to-sales (P/S) ratio is only 2, making Block an incredibly cheap stock.
Should I buy Block for its Cash App success?
Block stock is likely a buy, but it remains unclear what direct role Cash App has played in Block's success. Since it makes up more than half of Block's gross profit and has grown rapidly, it should influence Block's stock long term.
Admittedly, other factors, such as Bitcoin's rise, may have influenced Block stock more in the near term. Nonetheless, the company's rising revenue has narrowed its losses meaningfully, increasing the likelihood of profits in the foreseeable future. With those improving financials, Cash App investors should consider the fintech stock, even if the digital wallet's influence over Block fades into the background.
