Inarguably, one of the most exciting names in the broader technology space is Square (NYSE:SQ). Starting off as a point-of-sale (POS) equipment provider to now being a financial-technology (fintech) powerhouse, SQ stock has likewise witnessed a dramatic increase in its market value. That said, shares put up a choppy performance in 2019 full of peaks and troughs — likely putting many prospective buyers on edge.
Despite the paradigm-shifting and disruptive nature of the company, I can appreciate skeptics’ apprehensions. Not too long ago, SQ stock traded briefly in triple-digit territory. However, it was extremely difficult to sustain that momentum. Simply put, investors expected more from Square and the organization couldn’t keep up.
Additionally, Square’s CEO — Jack Dorsey — splits his time between the fintech and payments-processing specialist, and social media firm Twitter (NYSE:TWTR). Certainly, Dorsey has done an admirable job, all things considered. And for what it’s worth, he’s one of the few people I respect for both business acumen and intellectual prowess.
However, is this a benefit for SQ stock in the long run? You can make the argument that one person can only do so much. A few years back, Mashable wrote a story declaring that Apple’s (NASDAQ:AAPL) Steve Jobs and Tesla’s (NASDAQ:TSLA) Elon Musk hated running two companies simultaneously.
This is powerful evidence that no matter how gifted you are, no human is limitless; Bradley Cooper aside.
Still, what keeps me on the bullish train for SQ stock is the underlying company’s evening of the playing field. For example, with the POS equipment, Square changed the game for small businesses. Further, women own and run half of all Squared-powered businesses, indicating that Square is helping bust the glass ceiling.
Now, it’s got its eyes on financing.
SQ Stock to Jump on Business Financing Disruption
Among the biggest challenges for small businesses is to attain financing. But to do that, business owners must prove to their potential financiers that their funds will not go to waste.
The problem is that banks aren’t stupid. According to data from Fundera:
“20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business.”
Thus, many financing institutions are reluctant to lend to small businesses, especially one that doesn’t have a drawn track record. However, Square is actively disrupting this space via its Square Capital small business loan division.
Rather than listening to myriad pitches from business owners, Square Capital already has the information it needs: every Square merchant is plugged into the company’s accounting ecosystem. Armed with treasure trove of data, Square can then make smarter, more profitable decisions regarding their loan distributions.
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Moreover, the data confirms that Square Capital is a tremendous success. Back in the first quarter of 2016, the unit distributed 23,000 loans. In the latest earnings report for Q3 2019, this figure jumped to 85,000 loans. From Q1 2017 through Q3 2019, the average year-over-year growth in loan distributions was 37.2%.
Even more impressive, the value of loan originations surged from $153 million in Q1 2016 to $563 million in Q3 2019. Here, the average YOY growth rate (from Q1 2017 onwards) was 42.9%. Compared to the growth in the number of loans, this is a sizable difference.
To me, this suggests that bigger, more successful businesses are utilizing Square Capital’s offerings to their advantage. While the loan originations are small potatoes now, it could become a huge factor down the line.
Innovation Runs Strong Through Square
Most companies today love spouting “buzz words.” What I respect about Square — and by deduction, SQ stock — is that the organization spends more time doing than talking.
Essentially, with Square, you’re buying into the spirit of innovation. You can see it in the company’s development. First, the POS equipment allowed small businesses to offer the same conveniences as bigger competitors. Next, it developed a whole suite of bookkeeping features that mitigates the administrative frustration of running a business.
Now, it’s going after ground zero: disrupting the financing of small businesses. Slowly but surely, Square is funneling everything about entrepreneurship into its corporate umbrella. If you’re thinking about SQ stock, that’s what you should ultimately focus on, not the day-to-day choppiness.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
