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Twitter makes Dorsey look like a New Age fool, a simple target for Wall Street‘s ire. This is true even though Dorsey is worth more than $ 1 billion more than his harshest critic, Elliot Management founder Paul Singer.
Square has been as good an investment as Twitter has been a bad investment. The reason is Dorsey. He sets the strategy, hires the key people and leaves them alone while pursuing the next big idea.
His latest big idea is the Cash App, an app that has taken Square far beyond its beginnings as a payment processor. So far in 2020, the Cash App has given the Square share a gain of 24%, while payment rivals such as Visa (NYSE: V) and MasterCard (NYSE: MA) have lost ground.
The miracle of cash
Square delivered a solid pace on the estimates in its earnings report last week. It had adjusted net income of $ 110 million, 23 cents per share fully diluted, to revenue of $ 1.3 billion. The winnings are driven by Cash, a mobile payment app that has added some investment features.
While most investors’ attention has been paid to things like Alphabet’s (NASDAQ: GOOG, NASDAQ: GOOGL) Google Pay, Apple‘s (NASDAQ: AAPL) Apple Pay and PayPal (NASDAQ: PYPL) Venmo, the Cash App has won because of its extra features . This includes support for bitcoin, which represented over $ 500 million in revenue from 2019, according to Square’s US Securities and Exchange Commission 10-K report.
Since October, the Cash App has also included investment support, with fractional stock trading as low as $ 1. This makes Square a direct competitor to Robinhood, which had a valuation of $ 7.6 billion before a recent break. The Cash App now has 24 million users.
While these rivals are locked into niches such as payments, transaction management, banking, accounting or brokerage, Square treats all financial transactions as services. Just like Apple, it makes them easy to understand and use.
Not a hippie
Singer’s attack on Dorsey is based on the concept that he is a hippie, not a financial guy. It is more accurate to say that Dorsey is Steve Jobs, while Singer is Gordon Gekko.
Dorsey has two strengths that Square magnifies. He sees years of change ahead of other people, and he knows how to sell change through simplicity. No company has done so much in the last decade to disrupt financial operations as Square. It offers easy pricing, a combination of business services, and it understands money as a continuum, not a collection of silos.
Dorsey believes it makes sense to invest in Africa because the continent is young, spam and hungry. The median age there is 19.7, half of what it is in the United States or even China. Nevertheless, Africa is divided into 54 countries, which makes trade difficult. A unified payment platform can lead to tighter financial integration and turbocharging.
Dorsey sees bitcoin as part of that platform. It can be easily converted to any African currency. It can be traded without friction with the help of smartphones that most Africans have. He believes it will drive the next step in Square’s growth.
The conclusion on SQ stock
By all conventional measures, Square is overvalued. It has a subsequent price / income ratio of 97 and is traded for more than seven times the revenue.
But SQ stocks are the most unique game you can make in financial services. Jack Dorsey has forgotten more growth ideas in Square than Paul Singer has had in his entire life.
As the corona virus from China continues to crush the stock market, wait for the bearish sentiment to reach its peak. Then see if you can enter the square at a reasonable valuation.
Dana Blankenhorn has been a finance and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in AAPL.