The fintech company Square (NYSE:SQ) is heating up in the markets this year as the pandemic fuels cash payments. The digital payments app, founded by Twitter CEO Jack Dorsey, serves as the perfect payment solution in a contactless society. The company’s fame is largely bolstered by its subsidiary Cash App that saw its daily active users almost double this year. As a result Square stock is now up 240% and shows the potential to go higher.
Given that digital payments are now the new norm, there is a good chance that Square’s success will carry forward in a post-pandemic world. This makes the stock a great play right now.
Cashless Society Will Fuel Square Stock
The shift to a cashless society has been underway for a while now but the pandemic accelerated this movement. Although cash will be back in circulation in a post-pandemic world, digital payments will play a much more prominent role than before. Square’s Cash App is in a prime position to benefit from this trend.
The app enables users to receive and send money, purchase items and invest in bitcoin and stocks. This versatility made Cash App the go-to payments solution for individuals and small-business merchants. The app also played a crucial role in the distribution of government PPE checks during the pandemic. Square’s success this year is largely attributed to the growing momentum of Cash App.
The app’s performance translated into hefty gains for Square stock in its previous quarter. Cash App recorded a profit of $385 million – a 212% increase year-over-year, making up more than half of Square’s profits. The app has more than 30 million monthly active users this year and its performance exceeded Square’s management expectations.
Given the convenience factor and versatility of the app, Cash App’s momentum will continue into a post-pandemic world as well.
Huge Potential for Growth
Square was one of the biggest beneficiaries of the pandemic but the company still has a long runway for growth. In addition to its payment solution, Cash App, the company also operates Seller. This provides merchants with a number of features and B2C payment solutions. Square sees a huge opportunity in Seller and hopes to roll out the platform globally. The company estimates that one-third of its marketing budget will be put toward promoting it.
Adding to this, Square also introduced two new features to support its Square Payroll ecosystem- On-Demand Pay and Instant Payments. With On-Demand Pay, Square users can receive their compensation faster by just transferring $200 from their salary to the Cash App account. The second feature, Instant Payment, allows business owners to pay their employees with existing funds on the next business day.
More recently Square announced that Cash App will allow users to receive Bitcoin back on every transaction. A feature was previously limited to just U.S currency. This will allow Square to compete directly with other payment platforms like Visa (NYSE:V) and PayPal (NASDAQ:PYPL) that recently made moves into the cryptocurrency space.
The new features will help Square amplify its versatile payment platform and accelerate its growth levels in the coming years.
The Bottom Line
Square has a strong business model with its subsidiary Cash App leading the way but the company’s secret sauce is its ability to grow and keep up with emerging trends. This year brought digital payments into the spotlight and Square played a key role in its adoption. However, it has also integrated new features into its app to make the process of digital payments as seamless as possible. The growth of these solutions will keep earnings high in the coming years.
Cash App’s momentum will continue post-pandemic even if its growth may not be as high as it was this year. In addition to this, as businesses open back up, Square’s Seller ecosystem will gain more traction. Finally, the company’s foray into bitcoin can widen the scope of its platform and offerings. It can compete directly with PayPal, which is a huge player in the payments space.
Square stock saw a great year in 2020 but the company’s exciting new features hint at greater levels of growth in the next year. This makes this investment a great play as digital payments takes off.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.
