Now having regained most of its losses stemming from the spread of the novel coronavirus, Square (NYSE:SQ) stock is at a crossroads. Traders need a reason to push the share price to new heights, and the Cash App could easily be that reason.
Shelter-in-place mandates have forced many brick-and-mortar stores to close. However, the Cash App is versatile enough to drive transaction volumes despite the store closures. And when many of those stores eventually reopen, transaction volumes should benefit from that as well.
As we’ll discover, the Cash App has already proven its value to SQ stockholders. Holding on to the shares for more potential gains is, in large part, a wager that the app will continue to boost Square’s bottom line. Indeed, that’s a reasonable bet to make.
A Serious Revenue Generator
May 7 was a great day to be a SQ stockholder. On that day, the share price gained 10% after Square released its earnings data for the first quarter.
So, what galvanized the SQ stock buyers on that particular day? It probably had something to do with the $1.38 billion in quarterly revenues. That represents a year-over-year increase of 44%. It’s also better than Wall Street’s forecast of $1.29 billion.
That’s great, but let’s not bury the real headline here. A sizable portion of Square’s revenue gains undoubtedly came from the company’s consumer-friendly Cash App.
Revenues stemming from the Cash App totaled $528 million in the first quarter. That represents an astonishing 197% increase. Not only that, but direct-deposit volumes transacted via the Cash App tripled from March to April.
During the month of March, the company’s Cash App Square’s business saw its biggest increase in terms of net new-transacting active customers. Among the more popular uses of the app are online tipping, religious donations and fundraising.
Moreover, some users chose to have their stimulus checks deposited directly to the highly versatile Cash App. Not coincidentally, Square posted its highest monthly direct-deposit volume ever during the month of April.
This is not to suggest that Square is wholly dependent on the Cash App. Rather, it’s a powerful set of data strongly suggesting that this app could transform not just the company, but the payments-processing market entirely.
Users Linger Longer
Encouraging the company’s users to rely on the Cash App for direct deposits is, of course, a priority for Square. As Square Chief Executive Jack Dorsey explains:
“We do believe direct deposit is a huge opportunity… [D]irect deposit customers are some of the most engaged on the platform. And they typically carry much higher balances and use more of our products like Bitcoin and equities in addition to Cash Card and peer-to-peer.”
As you can imagine, user engagement is crucial for Square. It benefits the company and its shareholders when customers use the Cash App habitually. And when users think of the app as a convenient way to pay for just about anything, Square’s market footprint can grow exponentially.
On the topic of Cash App users maintaining higher balances, it’s conceivable that more users could view the app as a bank alternative or replacement. Bernstein analyst Harshita Rawat elaborates on this interesting angle:
“Cash App is gaining very real & rapid traction among the unbanked/underbanked and digital native demographics in the U.S – and many of its users are increasingly viewing Cash App as a digital bank account (versus simply a peer-to-peer or trading or a prepaid card or checkout service) — unlike its peers.”
The Final Word on SQ Stock
Square’s Cash App is quickly gaining traction as a versatile way to pay for a broad variety of products and services. It could even serve as an alternative to a traditional bank. Given the pandemic-driven “new normal,” the formerly unthinkable can now become a reality.
Higher prices in SQ stock won’t depend on the continued success of the Cash App. However, this strong revenue generator should certainly benefit Square and its shareholders.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
