Square (SQ) is expanding dramatically; its Terminal device accepts credit cards, debit cards and Apple Pay and Google Pay for example.
Moreover, Square’s answer to Venmo was the number one free finance app on the iPhone App Store in February 2017, Recode claims. Cash is a peer-to-peer (P2P) payment solution similar to PayPal’s Venmo. Recode calculates that Cash had seven million users in 2017.
Two million sellers and 250,000 invoice sellers were using the Square point-of-sale (POS) devices in 2017, Expanded Ramblings calculates. The Square Terminal could increase Square’s footprint use because retailers of all shapes and sizes can use it.
To explain, the Terminal is a small device that allows users to pay with mobile wallets, swipe cards, and insert chip cards. The Square Terminal is small enough to work with any cash register. Therefore, by large retailers such as supermarkets or discount stores could easily adopt Square (SQ).
An obvious use for Terminal is modernizing the payment systems at dollar stores. For instance, the POS at my local Family Dollar; a Dollar Tree (NASDAQ: DLTR) subsidiary, is slow expensive, and often fails to work with the store’s digital coupons.
The Square (SQ) Cash App is more popular than Venmo
Importantly, Cash is a money-transfer app accepted by big retailers. Recode claims Walmart (NYSE: WMT), America’s biggest retailer, and McDonald’s (NYSE: MCD) were the biggest recipients of Cash payments. That indicates Cash is reaching a mass market with ordinary people.
CNBC claims 33.5 million people had downloaded Cash in August 2018. If that is true, Cash has more users than Venmo. Additionally, Venmo they have downloaded Venmo 32.9 million times.
In detail, Cash supposedly lets you send money instantly in exchange for a 1.5% fee. Notably, Square (SQ) offers a personalized Cash Card that allows for ATM withdrawals and provides discounts at some merchants.
Therefore, a huge opportunity at Square is to offer POS devices integrated with Cash. To explain consumers could pay with Cash, receive Cash-based rewards points, and use Cash at ATMs. A Terminal that allows Cash users to receive change in paper cash will be a popular product.
Is Square (SQ) Making Money Yet?
Okay, Square (NYSE: SQ) is growing and has great opportunities in front but does it make money?
No, Square (SQ) is losing money right now. For example, Square reported a net loss of -$5.91 million and an operating loss of -$2.65 million for 2nd Quarter 2018. However, Square recorded revenues of $8.5 million and a revenue growth rate of 47.77% for the same period.
Markedly Square achieved a gross profit of $315.82 million for 2nd Quarter 2018. Therefore, I think Square is on the verge of making money. For instance, Square had an operating cash flow of $18.98 million and a free cash flow of $3.92 million on 30 June 2018.
Unfortunately, Square reported a financing cash flow of $788.77 million for 2nd Quarter 2018. That indicates Square is borrowing to finance its expansion.
Will Square (SQ) Make Money?
Square (SQ) now has some money. It reported $1.428 billion in cash and equivalents; and $318.64 million in short term investments on 30 June 2018, for example.
Consequently, Square had $1.747 billion in the bank at the end of 2nd Quarter 2018. That number exceeded Square’s 2nd debts of $1.071 billion.
Those numbers prove Square can make and keep money. Now Square needs to generate income.
Square (SQ) Pays No Dividend
Predictably Square (SQ) pays no dividend and has no dividend history. However, its stock had value at $74.30 a share on 25 October 2018.
I think Square is an interesting fintech play because of its fast-growing platform. The popularity of Cash in particular shows Square could become a major financial services player.
If you are looking for a risky fintech stock with long-term potential Square is a good speculative play. I expect Square to start to make money and its share value to grow in the next few years. However, I do not expect Square to pay a dividend soon.
Is Square (SQ) an Acquisition Target?
Investors might make money because Square (SQ) is a likely acquisition target. I think a big bank or credit card company could buy Square to expand its fintech business.
Under those circumstances, the likely buyers for Square (SQ) are large US banks like JPMorgan Chase (NYSE: JPM) and Citibank (NYSE: C). Another possible buyer for Square is fast-growing Chinese financial services company Ant Financial.
The privately held Ant owns the world’s second most popular payment app Alipay, but it lacks an American footprint. Buying Square (SQ) will give Ant access to the American market via Cash.
Moreover, Ant Financial is probably the world’s most valuable unicorn. Reuters claims analysts valued Ant at $150 billion in July 2018. However, Ant will have a difficult buying Square because of growing anti-Chinese hysteria in the United States.
Who Will Acquire Square (SQ)?
Other suitors for Ant could include Uber Technologies Inc., Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG), Facebook (NASDAQ: FB), Visa (NYSE: V), MasterCard (NYSE: MA), SoftBank, and Walmart (NYSE: WMT). Walmart has been on a digital acquisition spree recently.
In addition, Walmart is a major player in financial services with its own mobile wallet Walmart Pay. Buying Square will make give Walmart more control over fintech and empower its efforts to crush NFC payment.
Ant and its competitor Tencent Holdings (OTCMKTS: TCEHY); owner of WeChatPay, have the money to buy Square. Notably, WeChatPay is the world’s popular payment app with 500 million users, Business Insider calculates. However, WeChatPay has no market penetration in the United States.
Obviously, Square (SQ) is now a prime acquisition target because of Cash’s success. Furthermore, being an acquisition target makes Square a good speculative stock investment. The Square (SQ) shareholders will profit through the money the acquiring company pays for their shares.
Square has become one of the most interesting fintech stocks around. Look at it if you want an alternative to PayPal (NASDAQ: PYPL).