Square: Jack Dorsey, Bitcoin And Why We’ve Entered The Buy Zone

Summary

I am more bullish on Square because Jack Dorsey left Twitter.

Square is a strong FinTech player and Bitcoin is the pivot point.

Jack Dorsey will likely push Square even harder into Bitcoin.

Investors who love Bitcoin should look at Square closer now.

Square’s share price is depressed with the shift from growth to value.

This idea was discussed in more depth with members of my private investing community, Growth Stock Renegade. Learn More »

Joe Raedle/Getty Images News Why Square?

My regular readers know that I’m a fan of PayPal ( PYPL ).

I’ve also closely tracked Visa ( V ) and Mastercard ( MA ) over the years. I’ve recently focused quite a bit on V, and it’s likely more is coming. Furthermore, I’ve done a lot of analysis on big banks like Wells Fargo ( WFC ), JPMorgan ( JPM ) and Bank of America ( BAC ).

All of this matters because the FinTech space is a multidimensional animal. And, there are many complexities involved so simplification isn’t easy. I’ll return to this shortly. Before we go there, I need to be clear about what we’re doing here today.

Recent news has caused me to become more bullish on Square ( SQ ). I’ve been watching SQ closely, waiting for an opportunity to even consider developing a buy price. That’s the direction we’ll go today. The FinTech Market

In case you’re not fully aware, the FinTech market is huge, and growing. Here’s some data to get your mouth watering: Fintech Investments Have Hit $91.5 Billion In 2021, Nearly Doubling Last Year’s Total And, while I think the projections go out too far to be realistic, here’s more data to chew on : The global fintech technologies market size was valued at $110.57 billion in 2020, and is projected to reach $698.48 billion by 2030, growing at a CAGR of 20.3% from 2021 to 2030. Most of the research I’ve seen puts the FinTech market in the $100 billion range, and the CAGR ranges from 20% to 25% over the next several years. Needless to say, this growth is dramatic. What’s Driving FinTech?

Accommodative government regulations

Increased utilization of IoT (“Internet of Things”) devices

Secular rise of e-commerce and online shopping

More digital devices (i.e., phones, tablets, computers)

Rise of software development tools, APIs, data access

Here’s a quick view into the maturity and reach of FinTech: Institutional players are getting more and more involved, often playing catch up. Regulations and legal compliance are getting far more mature, including greater focus on security and data protection.Investors are also getting more interested in FinTech B2B versus B2C, which implies greater infrastructure, higher volume, and generally more growth via size (e.g., international scope). Square Size And Some Financials Now, as I mentioned earlier, it was PYPL that got me most interested in SQ. Here’s why. First, SQ isn’t as big as PYPL but it’s still a major player in payment processing. But, that’s not a sweet spot for SQ. It’s far better to look at peer-to-peer payments, where SQ shines via CashApp. Here’s a comparison for the U.S.: Zelle = 48.2 million users (63 million projected in 2025) CashApp = 39.7 million users (54 million projected in 2025) Venmo = 77.8 million users (107.6 million projected in 2025) And, to put some financials against that: SQ said Cash App delivered Q1 total net revenue of $4.04 billion and gross profit of $495 million, up 171% year over year . Thinking About Bitcoin At the same time, a huge fraction of Q1 Cash App activity was concentrated: That said, a huge chunk of SQ’s recent revenue has been driven by Cash App . In Q1 2021, SQ generated $5.06 billion. Of that, Cash App delivered $4.04 billion of revenue. And then, of that $4.04 billion, $3.51 billion was generated from SQ’s Bitcoin services. In other words, Bitcoin activity via Cash App generated 69% of all SQ’s revenue in Q1 . Fine, but that was Q1. Let’s fast forward to Q3 and see what we get. Straight from SQ leadership: Cash App generated gross profit of $512 million up 33% year over year or 104% on a two year CAGR basis with strong engagement in inflows, inflows or money pulled into our ecosystem, achieved strong growth on a two-year CAGR basis even as most government disbursement programs ended. Bigger picture, SQ generated $3.84 billion (up about 27% year-over-year), but that fell short of analyst expectations by $640 million. Expenses grew 55% […]

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