Square (SQ)

Square (SQ)

Summary:  Watch

Score:  10/20

MOS:  48%

Share Price:  $189

Sticker Price:  $366

The previous Tykr review on Square was completed on July 21, 2021. At that time the summary was as follows:

Summary: On Sale

Score:  11/20

MOS:  56%

Share Price:  $246

Sticker Price:  $566

Is Square stock a good buy?

Square is a financial services, merchant services aggregator, and mobile payment company founded in 2009 and based in San Francisco, California. Today they have just over 5,400 employees.


Interesting Facts

  • The original inspiration for Square occurred to Jack Dorsey in 2009 when Jim McKelvey (a friend of Dorsey) was unable to complete a $2,000 sale of his glass faucets and fittings because he could not accept credit cards.
  • Co-founders Dorsey, also co-founder of Twitter, and McKelvey began developing Square out of a small office in St. Louis.
  • As of November 29, 2021, Dorsey announced he’s stepping down from CEO at Twitter to focus on Square full time. Twitter’s CTO, Parag Agrawal, will step into the CEO role at Twitter.
  • Square owns a majority share of Tidal, a Norwegian subscription-based music, podcast, and video streamlining service.
  • As of December 10, 2021 “Square” will be renamed to “Block” but the ticker symbol “SQ” will remain the same.


Square generates revenue through 6 primary channels:

  1. Transaction fees 

Square’s card-present processing fee is 2.6% + $.10 per transaction for contactless payments, swiped or inserted chip carts, and swiped magstripe cards. In comparison, PayPal charges 2.9% + $.30 per transaction, and Stripe charges 2.9% + $.30 per transaction. For card-not-present transactions such as keying in a credit card manually, the fee is 3.5% + a $.15 fee per transaction. 

  1. Cash App

Square’s Cash App allows consumers to make peer-to-peer transactions for free but charges 2.75% to businesses that accept Cash App. Similar to PayPal or Venmo, free peer-to-peer transactions are a great way to get a massive volume of consumers within the ecosystem. Today there are over 40 million monthly active users on the cash app.

  1. Subscription fees 

Square offers software subscription products including appointment management, payroll management, email marketing, and rewards programs that range between $15 and $45 per month and are focused on small businesses. This revenue stream accounts for over 29% of Square’s revenue.

  1. Hardware 

Square sells hardware products including payment terminals and card readers that range in price from $10 on up to $800. This revenue stream accounts for 2% of Square’s revenue but it’s actually not generating a profit. In the last year hardware made $44M but Square spent $61M to make the hardware. Although the hardware component of the business isn’t profitable, it allows Square to generate $1.2B in revenue through transaction fees.

  1. BNPL (Buy Now, Pay Later)

On August 1, 2021, Square announced that it will be buying Afterpay, a global leader in the BNPL movement. Square will be integrating Afterpay into its existing Seller and Cash App business units which enables merchants to offer BNPL at checkout, give Afterpay consumers the ability to manage their installment payments directly in Cash App, and give Cash App customers the ability to discover merchants and BNPL offers directly within the app. Afterpay charges business a flat fee of $.30 per transaction and a variable fee between 4% and 6%. BNPL allows customers to make payments in installments and studies have shown that customers spend 10% to 20% more when BNPL is offered. Afterpay also charges a $10 late fee to consumers for orders below $40 and a maximum late fee of $68 for orders above $40.

  1. Bitcoin 

You may also buy bitcoin through Square and the platform charges you about 1.76%. This revenue stream accounts for over 50% of Square’s revenue.

When you take a step back, Square has an impressive array of revenue channels. Transaction fee business models as well as SaaS business models are two of the most scalable business models today. Transaction fees are low friction and highly lucrative. Most consumers don’t complain about transaction fees because they are typically unnoticed. 

SaaS applications are highly lucrative and scalable because there is no supply chain or inventory. Whether you sell one license or one million licenses, the only major costs you will incur are additional customer service staff (if they are even needed). With low-touch SaaS platforms, you can typically sell a massive volume of licenses without adding too many employees.


Latest News

This article from fool.com states that Square is a great hedge against inflation. This means as inflation rises, so do prices on products and services. As those products and services rise in price, Square’s revenue per sale increases because of the transaction fee percentages.

This article from fool.com lists 3 stocks that will soar in 2022 including Square, Good RX, and PayPal. Square will continue to do well due to Bitcoin transactions along with the BNPL service offered by Afterpay.

This article from investorplace.com lists 10 fintech stocks to buy on the dip. These stocks include Square, PayPal, Fiserv, MercadoLibre, Xero, and more. This article sites a recent statement from Dorsey after he stepped down from Twitter: “We built the Square brand for our Seller business, which is where it belongs. Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to build tools to help increase access to the economy.” This statement provides some encouragement that Dorsey is highly focused on adapting quickly to market changes. The acquisition of Afterpay is a perfect example of this.

This article from invesorplace.com talks about Square’s new product titled the Lighting Development Kit (LDK). LDK is built on the Bitcoin ecosystem and allows peer-to-peer bitcoin transactions to be processed faster. The recent announcement of this feature showed a slight increase in the share price. Knowing that Bitcoin transactions account for over 50% of Square’s revenue, this feature is expected to contribute to an increase in revenue in 2022.

This article from gurufocus.com states the acquisition of Afterpay adds an even wider moat to Square.  Investors should expect to see significant growth in 2022 based on this product alone.


Competitive Comparison

Square (SQ)

Summary:  Watch

Score:  10/20

MOS:  48%

Share Price:  $189

Sticker Price:  $366

Revenue: $9.5B

Countries: 7

Currencies: 130


PayPal (PYPL)

Summary:  On Sale

Score:  15/20

MOS:  80%

Share Price:  $191

Sticker Price:  $960

Revenue: $21.4B

Countries: 200

Currencies: 25


Adyen (ADYEY)

Summary:  On Sale

Score:  13/20

MOS:  80%

Share Price:  $27

Sticker Price:  $139

Revenue: $3.6B

Countries: 30

Currencies: 120


4 M’s

MOS (Margin of Safety): With a score of 10/20 and a MOS of 48%, we can see this stock is just shy of achieving an On Sale summary. Although we would like to see a MOS of 50% or higher, the 48% shows the stock has plenty of upside potential. Regarding the score of 10/20, we would like to see improvements to the overall financial statements. 

Meaning: Will Square be around in the next 10 years? Absolutely. The Bitcoin transaction product as well as the BNPL product will be key revenue generators over the next few years.

Moat: PayPal is the big threat but fortunately the fintech market has plenty of room for growth. In fact, this article from finance.yahoo.com states the fintech market is expected to grow 26% year over year. This means Square, PayPal, and Adyen can all thrive in this market.

Management: Jack Dorsey is the CEO, Chairman, and Co-Founder of Square which went public in 2015 and currently has a market cap of $87B. Prior to Square, Dorsey also co-founded Twitter in 2006, which went public in 2013, and currently has a market cap of $35B. Creating one tech unicorn is impressive but creating two tech unicorns is incredibly rare. As mentioned earlier, Dorsey has stepped down from Twitter to place his focus on Square.



Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.


Revenue (Found on the Income Statement)

2017:  $2.2B

2018:  $3.2B

2019:  $4.7B

2020:  $9.4B

Revenue growth in 2020 was incredible. When looking at the quarterly statements, the most recent quarter did see a slight decline from the previous. This is okay because the quarterly revenue is still higher than where it was a year ago.


Net Income (Found on the Income Statement)

2017:  -$62M

2018:  -$38M

2019:  $375M

2020:  $213M

Net Income has significantly increased in 2019 but has fallen off in 2020. This has caused the EPS to decline. When looking at the quarterly statements, the most recent quarter did see a decline. Although this is not what we want to see, we do expect the revenues and net income to increase in 2022.


EPS (Found on the Income Statement)

2017:  -.17

2018:  -.09

2019:  .88

2020:  .48

EPS has declined in 2020 but as mentioned, we do expect this number to increase primarily due to bitcoin and BNPL transactions.


Free Cash Flow (Found on the Cash Flow Statement)

2017:  $101M

2018:  $232M

2019:  $403M

2020:  $243M

Free Cash Flow has decreased slightly but when looking at the quarterly statements, the free cash flow has remained flat which is okay.


Total Assets (Found on the Balance Sheet)

2017:  $2.1B

2018:  $3.2B

2019:  $4.5B

2020:  $9.8B

Total Assets have increased which is a good sign.


Total Liabilities (Found on the Balance Sheet)

2017:  $1.4B

2018:  $2.1B

2019:  $2.8B

2020:  $7.1B

Total Liabilities have increased significantly. This is most likely due to the hiring of more employees.


Total Debt (Found on the Balance Sheet)

2017:  $631M

2018:  $1.7B

2019:  $2.1B

2020:  $3B

Total Debt has increased which is okay. This is most likely due to bank loans to help finance the growing payroll.


Total Equity (Found on the Balance Sheet)

2017:  $786M

2018:  $1.1B

2019:  $1.7B

2020:  $2.6B

Total Equity has increased which is a good sign.


When looking closely at the financial statements, the score of 10/20 shows there is room for improvement. The balance sheet is the strongest financial statement followed by the cash flow statement. Ideally, we want to see improvements to the income statement, specifically the revenue, net income, and EPS. We should expect the next annual statement to show some positive numbers. With the meaning, fintech is a high demand industry and Square is well positioned to grow in this industry over the coming years. Although I’m not an investor in cryptocurrency, I am a fan of creating tools that support trends. In this case, I’m impressed with the revenue Square generates by supporting Bitcoin transactions. I’m also excited to see the growth potential after the acquisition of Afterpay to provide BNPL transactions. With the Moat, I do see the competition but based on the growth of the fintech industry, there will be a lot of winners including Square, PayPal, and Adyen. With the Management, I think it’s a great idea that Dorsey is picking Square over Twitter. Typically when a business leader is running multiple businesses at once, there can be limitations with growth. Dorsey has done a good job running both companies to date but it’ll be great to see him focus on one from here on out.

As of early December 2021, Square’s price is down by over 30%. This massive buying opportunity may not last long. If you’re interested in Square, now may be the time to take action.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.