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Narrative Analysis: Block, Inc. (NYSE: SQ)
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Learn about Block’s story, one the largest financial services & technology conglomerates in the world, and the way they are changing the way we deal with payments
*Disclaimer: This analysis was done using Q1 2023 data*
Overview
Who - Block, Inc. (formerly Square, Inc.)
What -Sector: Technology | Industry: Computer Products
When -Founded: 2009 | IPO: 2015
Where - Across various markets; ranging from mid-market B2B to P2P transactions
Why
Square: Helps millions of sellers run their business-from secure credit card processing to point-of-sale (PoS) solutions
CashApp: Send and spend, bank, and buy stocks or bitcoin
TIDAL: An artist-first, fan-centered music streaming platform that delivers over 100 million songs in HiFi sound quality to the global music community
Afterpay: Buy Now, Pay Later (BNPL)
Weebly: Easily build a free website to help you get discovered and grow your customer base in style
TBD: Make the decentralized financial world accessible – for everyone
Key People
Board of DirectorsExecutive Officers
Key Events
Key Businesses
Square
Omnichannel Point-of-Sale (PoS) system with integrated solutions targeting small-to-medium sized businesses.
Operations include:
Online and in-person PoS
Inventory management
Appointment booking
Marketing and payroll
Small-business loans
Have recently included financial services at the PoS, such as business loans, “so merchants can access a business loan and manage their cash flow all in one place.”
Competitors: PayPal, Shopify, Toast
CashApp
Peer-to-peer (P2P) financial services application. Bank service(s) provided by CashApp’s bank partners. Brokerage services by Cash App Investing LLC, Bitcoin services by Block, Inc.
Operations include:
P2P Payments
Banking (Savings and “Round-ups”)
Cash Card (Debit Card linked to account)
Cash App Pay (QR Code)
Trade & Send (Bitcoin and Stocks)
Competitors: Venmo, Zelle, Apple Pay
TIDAL
“A global music streaming platform bringing fans closer to artists through unique experiences and the highest sound quality (HiFi).”
Tidal has positioned itself as the leader of revenue per stream for artists.
While the catalog provided by TIDAL is not as vast as some of its competitors, TIDAL is able to provide less compressed audio files for a better overall sound experience.
Afterpay
Provides Buy Now, Pay Later (BNPL) services. BNPL allows customers to purchase products immediately, while spreading out the cost of the purchase over a number of installments. Had a large presence abroad prior to acquisition, such as Australia, New Zealand, and the UK.
Competitors: Affirm, Klarna
Weebly
A no-code, web-designer that helps businesses establish a digital storefront online. Provides free web-hosting for customers and utilizes Square for eCommerce.
Competitors: GoDaddy, Wix, SquareSpace
TBD
Provides an open-source platform that enables developers to create decentralized products.
“With decentralized identity, TBD is reinventing the account model of the internet – to empower people to own their identities, unlock access to financial services, and regain privacy and control over how their personal data is used.”
Competitors: DeFi Ecosystem — Uniswap, Synthetix, etc.
Key Analyses
SWOT Analysis
PESTEL Analysis
Political
Crypto Regulation – With current crypto regulations in the US appearing somewhat muddled, there is yet to be definitive regulation within the industry outside the purview of existing asset laws
Asset Classification – While the SEC has declared BTC a commodity, classification can continue to have tax implications (e.g., impairment charges, capital gains) surrounding the buying and selling of crypto assets
Banking Regulation – Although currently a Financial Services enterprise, current banking regulations limit Block’s offerings to customers, such as banking operations, lending practices, and reserve assets
Economic
Exchange Rate – A volatile and weakening US dollar could impact Block’s long-term investments, as cash, non-cash, and other assets remain on the balance sheet
Effective Federal Funds Rate(EFFR) – Recent rate hikes by the Fed and current EFFR (5.3%) warrant an attempt to increase the national savings rate. Additionally, while the APY on bonds and cash equivalents has increased, so has the APR on mortgages and other loans, expressing a call for more risk-averse investing
Economic Performance of the United States – On a macro scale it appears that the US will remain the lender of last resort and dominant world player for years to come. On a micro scale, individual markets such as the housing market, equities market, and commodities market could apply downward pressure on overall economic growth
Social
Societal Norms – With cell phone users expected to increase to 7 billion people in 2023, phone screen-times will increase. Additionally, as more people adopt cell phones their accessibility to mobile applications also increases
Demographics – Children are being introduced to cell phones at increasingly younger ages. This population, although young, represents a large portion of unbanked and less-financially savvy individuals
Technological
Moore’s Law –Faster and better central processing units (CPU) will be released frequently over time, thereby advancing overall computing power and speed
Cheaper Products – As competition increases the cost of goods will decrease, paving a landscape for low-cost providers across the industry
Legal
Crypto Lawsuits – Precedent-setting ruling by a federal judge that “programmatic sales [of XRP] to retail investors through exchanges did not violate securities laws”. Conversely, Facebook was met with staunch pushback at Congressional hearings when its now-defunct Libra crypto asset was first announced, as it was deemed a threat to the sovereignty of the US dollar
Data Protection Laws – Data regulation within the US has increased recently over the past few years. With sensitive customer data transferred on a daily basis (e.g., PII, PFI, etc.), Block needs to able to operate accordingly in a consistent and safe manner
Environmental
BTC Mining – Globally, mining is associated with roughly 0.01% of greenhouse gas emissions, which is 56x more energy efficient than the current banking system
Environmental, Social, and Governance (ESG) Initiatives – Block has committed to operating in a manner consistent with widespread ESG initiatives
Narrative
The Story
Block Inc., formerly known as Square Inc., is a prominent American multinational technology conglomerate with a compelling history. The company was established in 2009 by visionary entrepreneurs Jack Dorsey and Jim McKelvey, and it introduced its inaugural platform in 2010. This innovative conglomerate has been publicly traded on the New York Stock Exchange since November 2015, utilizing the ticker symbol SQ.
Initially, from its inception until December 10, 2021, the corporation bore the name Square, Inc. During this period, it created and popularized the "Square," which is still the moniker for its signature product catering to small businesses. This innovative solution has revolutionized small and medium businesses' operations by providing a versatile payments platform. This platform empowers businesses to accept credit card payments efficiently, employing smartphones or tablets as payment terminals within a comprehensive point-of-sale system.
Diving into the diverse endeavors of Block Inc., it's evident that the company's reach extends far beyond its origins. "Cash App" stands as a notable venture within their portfolio—a mobile application enabling seamless monetary transfers among users and facilitating transactions between users and businesses. Another striking addition to Block's repertoire is "Afterpay," a buy-now-pay-later service that has garnered substantial attention.
Furthermore, Block's strategic expansion encompasses ventures like "Weebly," which offers comprehensive web hosting services, addressing the digital needs of various entities. In the realm of entertainment and media, the conglomerate made an impactful entry with "Tidal." This subscription-based platform specializes in delivering a diverse array of music, podcasts, and video streaming content, enriching the digital media landscape.
In sum, Block Inc.'s journey encompasses its transformation from Square Inc., tracing back to its origins in 2009. The company's evolution led it to become a notable player in the technology conglomerate sphere, epitomized by its dynamic range of offerings. From empowering small businesses with payments solutions to delving into financial services, digital transfers, web hosting, and even entertainment, Block Inc. is emblematic of adaptability and innovation in the modern tech landscape.
The Outlook
CashApp - P2P Payments
Industry Highlights
Continued Rapid Growth: P2P payments are experiencing significant expansion due to increasing digital adoption, offering users quick and convenient ways to transfer funds.
Mobile-Centric Convenience: The proliferation of smartphones and mobile apps is driving P2P adoption, making it easier for users to send money instantly through user-friendly interfaces.
Diverse Payment Options: P2P platforms provide various payment methods, including bank transfers, cards, and even cryptocurrencies, catering to users' preferences.
Global and Cross-Border Expansion: P2P payments are poised to grow internationally, with more accessible and cost-effective cross-border transactions benefiting migrant workers and global businesses.
Innovation and Fintech Synergy: The P2P space is competitive, prompting ongoing innovation such as integrated e-commerce and stronger security measures, while collaborations between fintech startups and traditional institutions are reshaping the industry.
Areas of Expected Growth
Mobile Adoption: As smartphones become even more prevalent, P2P payments will likely capitalize on mobile apps' ubiquity for user-friendly transfers.
Cross-Border Transactions: Growing demand for affordable international transfers will drive the expansion of cross-border P2P transactions.
E-Commerce Integration: P2P payment systems embedded in e-commerce platforms will likely streamline online purchasing, enhancing user experiences.
Square - PoS Systems
Industry Highlights
Digital Transformation Acceleration: The POS space is witnessing rapid digital transformation as businesses adopt modern POS systems that integrate inventory management, analytics, and customer engagement tools. Cloud-based and mobile POS solutions are becoming more prevalent, enabling businesses to streamline operations and enhance customer experiences.
Contactless Payments and Omnichannel Integration: The adoption of contactless and mobile payments is growing, driven by changing consumer preferences and hygiene considerations. POS systems are expected to increasingly integrate with omnichannel strategies, allowing seamless shopping experiences across physical stores, online platforms, and mobile apps.
Data-Driven Insights and Personalization: POS systems are evolving beyond transaction processing, offering valuable data insights to businesses. This data can inform inventory management, sales trends, and customer behavior, facilitating informed decision-making. As AI and machine learning advance, POS systems are likely to leverage data for personalized customer experiences and targeted marketing.
Areas of Expected Growth:
Mobile and Tablet-based POS: The shift towards mobile and tablet-based POS systems is anticipated to continue, offering flexibility, mobility, and cost-effectiveness for businesses of all sizes.
E-commerce Integration: POS systems that seamlessly integrate with e-commerce platforms will likely see increased demand, enabling retailers to synchronize inventory, orders, and customer data across online and offline channels.
Enhanced Analytics and AI: Growth in AI-powered analytics will empower businesses to gain deeper insights from transaction data, optimize inventory, and enhance customer engagement strategies.
Other
TIDAL — Once being one of the few providers of HiFi music streaming, TIDAL has now faced steeper competition with streaming giants Spotify and Apple Music set to release their proprietary versions of HiFi over the course of the next couple of years
TBD — In the budding landscape of decentralized finance (DeFi), Ethereum and it’s Layer 2s have taken the world by storm. Bitcoin DeFi has yet to receive the same prosperous growth and attention, but with ecosystem players such as Stacks and TBD taking initiative, the Bitcoin DeFi space remains relatively unchartered and… tbd
Weebly and Afterpay — Once stand alone businesses, both Weebly and Afterpay synchronize perfectly with Block’s existing businesses units of CashApp and Square. Weebly provides new businesses a Web2 interface with seamless integration to Square’s online PoS systems while Afterpay provides financing to end consumers so that small business owners can continue business operations as usual
Spotlight
Revenue Drivers
In Q1 of 2023 Block, Inc. generated roughly $4.99B (⬆ 26% YoY |⬇ 3% QoQ) in revenue
(66%) CashApp – $3.27B (⬆ 33% YoY |⬆ 14% QoQ)
(33%) Square – $1.67B (⬆ 15% YoY | ⬇ 5% QoQ)
(1%) Corporate and Other – $51M (⬇ 7% YoY | ⬆ 32% QoQ)
CashApp
Roughly ⅔ of CashApp’s total revenue is derived from Bitcoin revenue – the total value of Bitcoin sold to customers – which has increased 25% YoY. The increase in Bitcoin revenue can be attributed to an uptick in quantity sold to customers, however somewhat suppressed by the volatility and slight decline of Bitcoin prices over time.
The additional ⅓ of CashApp’s total revenue can be attributed to transaction-based Revenue and Subscription & Services Revenue.
Square
Unlike CashApp, a majority of Square’s revenue (77%) stems from transaction-based activities; perfectly articulating the difference between the businesses and their business models. Square attributes a 15% YoY increase in transaction-based revenue namely through growth in in-person and online channels. Over the past year (ending March 2023), Square processed more than $193B in gross payment volume (GPV).
Additionally, in Q1 alone Square processed over $1B in originations spread across 113,000+ different loans.
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