In early March, I recommended Square Inc (NYSE:SQ) as one of the 10 fintech stocks to own for the next 10 years. For me, there’s no comparison between Square stock and Jack Dorsey’s other company, Twitter Inc (NYSE:TWTR).
Social Media Doesn’t Solve Square Stock’s Problems
The recent Facebook, Inc. (NASDAQ:FB) data breach illustrates how social media isn’t quite the nirvana people once thought it was.
As they used to say, “garbage in, garbage out.” Only now, that garbage is accessible data, and some very bad people are using it for their own financial gain.
Just today I got an email from Hootsuite CEO Ryan Holmes explaining that as a result of the changes at Facebook to protect user data, some of the functionality of Hootsuite’s platform would be affected.
Twitter’s business operates exactly as Facebook’s does, only not nearly as well. Like Facebook, it has a lot of information about you that others can access, which is anything but good.
I’ll admit, I’ll occasionally Tweet something out via Hootsuite if it’s a subject I care about, but at the end of the day, if I deleted my Twitter or Facebook account, I’d be no worse for wear.
Do I think you should sell Facebook stock? No, I don’t, despite the recent problems. Unless advertisers stop advertising, it will continue to dominate the digital marketplace along with Google.
Square, on the other hand, actually helps people operate their businesses better, and you can always put a value on that.
Square Stock’s Growth Continues
Both Square and Twitter are transitioning from losing money to making money.
In my fintech article from March, I mentioned InvestorPlace’s Nicolas Chahine’s strategy for Square stock. He likes to go long SQ to gain exposure to bitcoin without the volatility — to illustrate why Square is a smart buy.
It gives you exposure to the payments industry, which is still extremely robust. And it also gives you a peek into fintech without buying one of the many cryptocurrencies available to trade.
One look at Square’s fourth-quarter results and you have to be impressed. Except for a generally accepted accounting principles net loss of $16 million, all the other financial metrics were extremely positive.
- Gross payment volume (GPV) up 31% year over year to $17.9 billion;
- Total net revenue up 36% to $616 million;
- Adjusted revenue (total net revenue less transaction-based costs) up 47% to $283 million; and,
- Adjusted EBITDA up 38% to $41 million.
Square checked all the boxes. In fact, revenues in Q4 2017 were actually sequentially higher than the third quarter, always a good sign in a growth company.
Square Stock Will Gain With Expanded Services
Even better, the company’s newest products are gaining traction. In Q4 2017, products created since 2014 accounted for 36% of adjusted revenue, which is important given the fact it no longer has a money-losing partnership with Starbucks Corporation (NASDAQ:SBUX) to slow it down.
The company’s strategy has three areas of focus in 2018: omnichannel commerce, financial services, and its current international markets. But it is the expansion of the financial services it provides sellers and individuals that’s the most exciting.
Between Square Capital and its Cash App, Square is providing individuals and businesses with the tools and products to be more financially successful in life. When you’re feeling better about your finances, you’re more likely to entertain using more of the company’s products and services.
It’s a win/win.
Bottom Line on Square Stock
Twitter and Square’s annual revenues are very similar at $2.4 billion and $2.2 billion, respectively. In terms of operating cash flow, Twitter has it beat with $831 million in 2017 compared to $128 million for Square.
Despite the difference in cash flow, I see Square having the higher market cap in five years because it solves more problems than Twitter does.
Long term, I really like Square’s business.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.