Over the past week Square (NYSE:SQ) has seen its share price plummet in the wake of a surprising tweet from CEO Jack Dorsey. The tweet in question suggested that Dorsey is planning to move to Africa for 3-6 months at some time in mid-2020. While some praise the move as a wise decision to explore the developing market in Africa, others say he won’t be an effective leader if he’s based on another continent.
The uncertainty sent SQ stock 5% lower on Monday as investors pondered exactly what Dorsey’s absence would mean for the company. On one hand, according to MoffettNathanson analyst Lisa Ellis, Africa could be a key part of SQ’s growth moving forward. She said that it “fits tightly with Square’s mission to empower the individual entrepreneur and drive financial inclusion,” so it makes sense for Dorsey to spend prolonged time there.
Other analysts echo Ellis’ sentiment that exploring Square’s potential in Africa is a positive step forward, though most agree that someone needs to remain stateside to oversee operations.
Jeffrey Sonnenfeld of Yale’s School of Management was critical of Dorsey’s planned departure saying, “Proximity matters for leading a company. Jack would be reckless and ego-maniacal as well as the board irresponsible and negligent, violating their duty of care under Delaware law, to let the CEO just go AWOL.”
Indeed, Sonnenfeld raises a crucial point— Dorsey would need to name an acting CEO if he does take an extended trip to Africa. So far, there has been no comment regarding who would step into Dorsey’s shoes. Importantly, he hasn’t rejected the idea of a temporary replacement. The bottom line is that in order to calm investors’ worries and provide stability, Jack Dorsey probably would name an interim CEO who is well-equipped for the job. Dorsey’s trip to Africa isn’t likely to do much harm to the firm’s future.
Square Looks Poised for Growth
That brings us to the question of whether Square stock is worth buying, Dorsey or not. So far this year, SQ stock has been hammered as worries about rising competition and slowing growth weighed on the share price. However Square’s Q3 results showed that the firm still has a spark. Global payment volumes were meaningfully higher than they were a year ago and revenue rose 44% from last year’s figure.
More importantly, the firm’s peer-to-peer business, Cash App, saw its net revenue rise an impressive 115% from the previous year. Cash App is widely regarded as one of Square’s most promising future bets. The firm has been building the app out to include a wide variety of services and it looks likely to become a hub of financial services for users. Most recently, Cash App announced the ability to facilitate stock trades free of charge.
Betting on the Future
Square has been making bets on future growth opportunities as well. The firm now allows CBD sellers to use its services, a move that could pay huge dividends in the future. The cannabis industry has struggled against headwinds recently, but most agree that growth within that sector is inevitable over the next few years.
Strict regulations regarding marijuana have made it difficult for businesses within the industry to access financial services, so Square’s offerings mark a turning point. As regulations on marijuana products start to ease and the industry matures, merchants will already be entrenched in the SQ ecosystem.
According to Dorsey’s Africa tweet, the firm is betting on Bitcoin. While Cash App already allows users to trade bitcoin on its platform, Dorsey’s mention that “Africa will define the future (especially the bitcoin one!)” suggests he’s going to dive deeper into the cryptocurrency market.
To be sure, Square doesn’t come without risks. Competition is fierce in fintech right now and Square isn’t immune to that. However if you believe that the company has long-term staying power, now is a great time to take a position.
Dorsey’s uncertain future is something to consider, but it’s unlikely to disrupt the company in the long-term. Square management will almost certainly set up a reasonable replacement plan for the duration of Dorsey’s departure, making now a great time to buy the dip on the stock.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.