As the digital payments landscape continues to evolve, investors are on the hunt for companies that are well-positioned to capitalize on the trend. One company that’s been making waves in the industry is Square, a fintech leader founded by Twitter co-founder Jack Dorsey. But is Square a good company to invest in? To answer this question, let’s dive into the company’s history, products, financials, and future prospects.
A Brief History of Square
Square was founded in 2009 with the mission of making credit card processing easier and more accessible to small businesses. The company’s first product, the Square Reader, was a small, square-shaped device that plugged into a smartphone’s headphone jack, allowing merchants to accept credit card payments on the go. The device was an instant hit, and Square quickly expanded its product lineup to include point-of-sale systems, online invoicing tools, and business analytics software.
In 2015, Square went public with an initial public offering (IPO) that raised $243 million. The IPO was seen as a success, with Square’s stock price doubling on its first day of trading. Since then, the company has continued to innovate and expand its offerings, making strategic acquisitions and partnerships along the way.
Products and Services
Square’s product lineup is designed to help small businesses and entrepreneurs manage their finances, inventory, and customer relationships. Here are some of the company’s most popular products and services:
Point-of-Sale Systems
Square’s point-of-sale (POS) systems are designed to be user-friendly and flexible, allowing merchants to process transactions, track inventory, and manage customer data from a single interface. The company offers a range of POS solutions, from simple mobile card readers to more advanced, full-featured terminals.
Online Invoicing and Payments
Square’s online invoicing tools allow businesses to create and send professional-looking invoices, track payments, and manage their accounts receivable. The company also offers a range of payment processing options, including credit card processing, Apple Pay, and Google Pay.
Business Analytics and Reporting
Square’s business analytics tools provide merchants with real-time insights into their sales, customer behavior, and inventory levels. The company’s reporting features allow businesses to track their financial performance, identify trends, and make data-driven decisions.
Financial Performance
So, how has Square performed financially? Here are some key metrics to consider:
Revenue Growth
Square’s revenue has grown steadily over the past five years, from $1.4 billion in 2016 to $6.5 billion in 2020. The company’s revenue growth rate has been impressive, with a compound annual growth rate (CAGR) of 44% over the past three years.
Profitability
While Square has yet to achieve profitability on a net income basis, the company has made significant progress in reducing its losses. In 2020, Square reported a net loss of $147 million, a significant improvement over its 2019 net loss of $544 million.
Cash Flow
Square has generated significant cash flow over the past few years, with operating cash flow growing from $143 million in 2016 to $532 million in 2020. The company’s strong cash flow has allowed it to invest in new products and services, make strategic acquisitions, and return capital to shareholders.
Competitive Landscape
Square operates in a highly competitive industry, with a range of established players and new entrants vying for market share. Here are a few of the company’s main competitors:
PayPal
PayPal is a well-established player in the digital payments space, with a strong brand and a wide range of products and services. While PayPal is a larger company than Square, Square has been able to differentiate itself through its focus on small businesses and entrepreneurs.
Stripe
Stripe is a fast-growing payments company that has gained a strong following among online businesses and developers. While Stripe is primarily focused on online payments, the company has been expanding its offerings to include offline payment processing, posing a threat to Square’s core business.
Future Prospects
So, what does the future hold for Square? Here are a few trends and opportunities that could drive the company’s growth:
Cashless Payments
The shift towards cashless payments is expected to continue, driven by consumer preferences and advances in technology. As more merchants adopt digital payment systems, Square is well-positioned to benefit from this trend.
Omnichannel Commerce
The rise of omnichannel commerce, where businesses operate across multiple channels and devices, presents a significant opportunity for Square. The company’s point-of-sale systems and online invoicing tools are designed to help businesses manage their operations across multiple channels.
Financial Inclusion
Square has made significant progress in expanding access to financial services for underserved communities, particularly in the United States. As the company continues to invest in financial inclusion initiatives, it could drive growth and increase its market share.
Conclusion
So, is Square a good company to invest in? Here are a few key takeaways to consider:
Square has a strong track record of innovation and growth, with a proven ability to adapt to changing market conditions.
The company’s focus on small businesses and entrepreneurs has allowed it to differentiate itself from larger competitors, such as PayPal.
Square’s financial performance has been impressive, with strong revenue growth and improving profitability.
The company’s future prospects are bright, with a range of trends and opportunities driving growth, including the shift towards cashless payments, omnichannel commerce, and financial inclusion.
While no investment is without risk, Square’s strong fundamentals, innovative products, and growth prospects make it an attractive option for investors looking to capitalize on the digital payments trend.
What is Square and what does it do?
Square is a financial technology company that provides a range of services to businesses, including payment processing, point-of-sale systems, and business management tools. The company was founded in 2009 by Jack Dorsey, who also co-founded Twitter, and has since grown to become one of the leading fintech companies in the world.
Square’s services are designed to help businesses of all sizes to accept payments, manage their operations, and grow their customer base. The company’s payment processing system allows businesses to accept credit and debit card payments, as well as contactless and mobile payments. Square’s point-of-sale system is a comprehensive platform that enables businesses to manage their sales, inventory, and customer relationships. In addition, the company offers a range of business management tools, including accounting, invoicing, and payroll services.
Is Square a profitable company?
Yes, Square is a profitable company. The company has reported consistently growing revenue and profits over the years, driven by the increasing adoption of its payment processing and point-of-sale systems by businesses. In 2020, Square reported revenue of $9.5 billion, up from $3.3 billion in 2018. The company’s net income has also been growing steadily, reaching $375 million in 2020.
Square’s profitability is driven by its ability to generate revenue from multiple sources, including payment processing fees, hardware sales, and subscription fees for its software services. The company’s business model is designed to be scalable, which means that it can expand its operations and increase its revenue quickly and efficiently. This has enabled Square to achieve high profit margins and to invest in new products and services that drive further growth.
What are the risks of investing in Square?
As with any company, there are risks involved in investing in Square. One of the main risks is the intense competition in the fintech industry, which could lead to pressure on Square’s pricing and market share. Another risk is the regulatory environment, as Square is subject to a range of laws and regulations that could impact its operations and profitability.
Additionally, Square’s business model relies on the continued adoption of digital payments and the growth of e-commerce, which could be impacted by changes in consumer behavior or technological advancements. Furthermore, the company’s reliance on a small number of large customers could leave it vulnerable to concentration risk. Investors should carefully evaluate these risks and consider them in the context of their overall investment strategy.
How does Square make money?
Square makes money through a range of revenue streams, including payment processing fees, hardware sales, and subscription fees for its software services. The company’s payment processing system generates revenue through a small percentage fee on each transaction, as well as through fixed fees for certain types of transactions.
In addition to payment processing fees, Square generates revenue from the sale of its point-of-sale hardware, including card readers, terminals, and registers. The company also offers a range of software services, including accounting, invoicing, and payroll services, for which it charges subscription fees. Furthermore, Square earns interest on the funds it holds in its customers’ accounts, which adds to its revenue.
What is Square’s growth strategy?
Square’s growth strategy is focused on expanding its services to new markets and customer segments, as well as investing in new products and technologies. The company has been successful in expanding its payment processing and point-of-sale systems to new markets, including internationally, and to new customer segments, such as large enterprises.
In addition, Square has been investing in new products and services, such as its Cash App, which allows individuals to send and receive money, and its Square Capital service, which provides financing to businesses. The company has also made several strategic acquisitions, including the purchase of Weebly, a website builder, and Zesty, a catering and food delivery company. These investments and acquisitions are designed to drive further growth and expansion for Square.
Is Square a good dividend stock?
No, Square is not a good dividend stock. The company has not paid dividends to its shareholders and has instead reinvested its profits in the business to drive further growth. Square’s focus on growth and expansion means that it is not generating significant profits that can be distributed to shareholders in the form of dividends.
However, investors in Square have benefited from the company’s rapid growth and increasing stock price, which has provided a strong return on investment. For investors who are looking for income from their investments, Square may not be the best option, but for those who are focused on growth and capital appreciation, the company’s focus on reinvestment may be attractive.
How does Square compare to its competitors?
Square is one of the leading fintech companies in the world, but it operates in a highly competitive industry. The company’s main competitors include PayPal, Stripe, and Adyen, which offer similar payment processing and point-of-sale systems. However, Square’s comprehensive platform and range of services set it apart from its competitors, and its focus on serving small and medium-sized businesses has enabled it to build a strong customer base.
Square’s competitive advantage lies in its ability to provide a seamless and integrated payment experience for its customers, as well as its focus on innovation and customer service. The company has a strong brand and a loyal customer base, which has enabled it to maintain its market share and continue to grow despite intense competition in the industry.