Investing in Square, Inc Stocks (NYSE: SQ)

Square, Inc (NASDAQ:SQ) is a financial services company based in San Francisco, California. Through its hardware and software solutions, Square provides businesses and individuals with a variety of tools to meet their everyday financial needs. Over the years, the company has grown from offering a single niche product to developing an entire financial services ecosystem. The company has continued to expand its horizons and has proven itself as a legitimate alternative to the traditional banking sector.

What is Square, Inc (SQ)?

Square was founded by Twitter CEO Jack Dorsey and businessman Jim McKelvey in 2009. The company employs 3,800 people and operates in the United States, Canada, Australia, Japan, and the United Kingdom. Square began by designing the Square Reader product for vendors, which plugged into a device's headphone jack and allowed them to process credit card transactions. Since then, the company has expanded its product offerings, building a suite of services that allow businesses to aggregate several functions, including merchant services and mobile payments, into a one-window service. Early adopters of Square technology included Starbucks and Whole Foods, who started offering payment options with Square products in 2012 and 2014 respectively. Following a period of early success, the company IPOed in 2015. Since then, the company has continued to innovate, offering solutions to meet a wide range of user needs.

Why does Square, Inc (SQ) Matter?

Square's operations exist in two distinct ecosystems. The first is their Seller Ecosystem, which provides services to meet the needs of businesses and merchants. Square is most well known for the Square Reader, which attaches to the headphone jack of mobile devices and allows merchants to accept card payments. Another well-known product within the Seller Ecosystem is the Square Stand, which is a point of sale solution that allows restaurants, retail outlets, and other brick and mortar stores to accept a variety of payment options. Square generates revenue through both a flat rate and percentage per transaction through these devices. The company has also quietly developed a number of back-end solutions for businesses including payroll software, customer engagement tools, invoicing software, appointment scheduling solutions, and business financing. While these may not be the most well-known Square products to consumers, these applications are critical in providing an end to end experience throughout the entire payment cycle. With these offerings, the company has cemented itself as the go-to service for a business' everyday needs.

The other pillar of Square operations is Cash App. Originally known as Square Cash, this mobile payment service allows individuals to transfer money through a mobile app. Through Cash App, customers have the ability to receive money into their debit accounts associated with their Square Cash Card as well as their own bank accounts. Cash App had approximately 32 million users at the end of 2020. While Square's main focus with Cash App is to compete with traditional banks, other digital solutions such as PayPal‘s Venmo are also strong competitors in the space. While Venmo has a larger user base, Cash App offers a number of additional features that have proven to be extremely popular. One example is the ability to buy and sell equities and Bitcoin through the application. Within the investing section of Cash App, users can use the balance in their account to make purchases of Bitcoins or equities in the stock market. Cash App was one of the first payment platforms to offer support for Bitcoin and the money generated through transactions has been a considerable part of their revenue model since then. The company's belief in crypto was further demonstrated in October 2020, when it was announced that they had invested $50 million towards the purchase of 4,709 Bitcoins. Together, these offerings have allowed the Cash App ecosystem to grow massively over the years and transformed it into a platform that allows users to spend, save, and trade all in one place.

Square, Inc (SQ) Prospects

In an increasingly digitized world, Square has built an ecosystem that allows both businesses and individuals to easily manage their money. With such a large number of product offerings, Square's revenue growth is not dependent on any single product, but rather a wholesale shift away from traditional financial institutions towards online, mobile, and digital solutions. While the fees collected per transaction using Square point of sale hardware has remained a core part of the company's growth since its inception, other revenue streams are becoming increasingly important. Areas of expansion throughout the years that are worth mentioning include Square's foray into the food delivery, website building, AI, deep learning, and tax filing software sectors. In addition to adding new streams of revenue, existing revenue streams also are well situated for exponential growth. With Square currently only operating in five countries, expansion of existing products and services into new marketplaces will be a promising avenue for growth moving forward.

Square has placed a significant focus on expanding its financial services offerings, specifically capital lending programs for small businesses. Through Square Financial Services, the company has received approval to open a bank in Utah in 2021. While small businesses would usually turn to traditional banks for lending, setting up business accounts, and other everyday services, Square's foray into this space could be a major threat to financial institutions. While there has been opposition with local community banks, Square has argued that they are meeting the needs of small businesses that traditional institutions are falling short on, citing numbers that say two-thirds of Square clients were unable to get financing anywhere else.

Where to Buy Square, Inc (SQ)

A broker that we recommend is Firstrade.

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Summary

From a simple card reader to a multi-billion-dollar company disrupting the entire financial services industry, Square's growth has been an amazing success story. The ability to expand on one product and create an entire ecosystem that is relied upon by millions of businesses and individuals is not something that is seen every day. While the company has already seen massive success, they show no signs of slowing down. With investments into Bitcoin and other disruptive technologies, CEO Dorsey has made his vision clear. Square has the potential to carry forward the entire sector into a new, digital age.