Will Square be a trillion dollar stock by 2030?
The traditional banks that have served as the foundation of our financial life for centuries suddenly find themselves under attack. FinTech companies such as Square (NYSE: SQ) are creating new ways of moving and managing our money.
The stock is winning, up more than 2,500% since its IPO in November 2015, and Square now has a market cap of $ 110 billion. Can it become a trillion dollar share by 2030? There are several reasons why this is possible.
The huge banking opportunity
The banking sector is the backbone of our economy with assets totaling approximately $ 18 trillion in the United States alone. The money that pays for goods and services is constantly flowing between people and businesses.
Square’s operation consists of two main segments, the Seller ecosystem and the Cash App ecosystem. The former includes a mix of hardware and software that traders use to operate their businesses. The latter is a platform that offers users a variety of financial products and services that allow them to save, spend, invest and transfer their money.
Analysts expect Square to generate $ 19.1 billion in total revenue in 2021, a 101% increase from the previous year. It might seem like a lot at first, but in an addressable multi-billion dollar market, there is still some open water for a business like Square to continue to grow for years to come.
Build a Cash application
Cash App is the number one reason investors should be excited about the business, as it is that part of the business that tackles the huge banking industry. Square regularly adds features, including:
- Peer-to-peer payments
- Debit card spending
- Direct deposits
- Investing in stocks and cryptocurrency
- Tax preparation
- Buy Now, Pay Later (BNPL) potentially en route
Square recently announced its pending acquisition of $ 29 billion in shares of BNPL company After payment, which will bring 16 million customers into the Square ecosystem where it can sell additional services. Afterpay also brings in $ 506 million in gross profit, which has increased 96% year over year.
The BNPL industry is rapidly gaining ground as an alternative lending option to traditional credit cards. It’s popular with young consumers for its transparency and flexibility, often with zero-interest loans on a handful of fixed installments. A research company recently estimated that the BNPL industry will reach $ 20 billion by 2028, representing an annual growth rate of 22%.
The long game?
Let’s try to put all these pieces together. The constant expansion of Square’s Cash app has extended far beyond a simple way to send money between friends – rather it has become a central financial “super app” that consumers turn to. turn for more and more of their needs.
Imagine having your paycheck deposited directly into your Cash App account. You have the option to pay your friend for that pizza from last night, pay your bills, shop for groceries, and put money into investments, all in Cash App.
A large bank can spend between $ 1,500 and $ 2,000 to acquire a retail bank customer. A business like Square doesn’t have the overheads and employees of a traditional bank, so it can acquire new users for less than $ 5, giving it a substantial advantage over traditional lenders.
Cash App reached 40 million monthly transaction users in June 2021, quadrupling over the past two years and before factoring in Afterpay’s inbound user base.
The road to $ 1,000 billion
Square has a market cap of $ 110 billion at the time of writing, which gives it a price-to-sales (P / S) ratio of 5.8 based on expected revenue of 19. , $ 1 billion in 2021. Based on this current multiple, Square is expected to generate approximately $ 174 billion in annual revenue by 2030 in order to have a market capitalization of $ 1,000 billion. And to achieve that revenue by the end of this decade, the company is expected to average at least 28% annual revenue growth for the next nine years.
How likely is this to happen? Well, Square has grown its revenue an average of 50% per year since 2015, but in the future, its progress will sometimes be uneven. For example, analysts expect revenue growth in 2022 to slow to just 12% after a triple-digit jump in the current year.
Sounds prudent given the company’s momentum since the start of the pandemic, but even in a scenario where the 28% annual growth does not materialize, Square can still turn into a trillion dollar stock – at term. Its growth roadmap remains wide open with the expansion of Cash App and the integration of new businesses such as Afterpay. As Square adds new features, it should generate more revenue per user. At the same time, Cash App still reigns as the # 1 financial app on Apple and Google’s app stores, and the company has a significant international opportunity, so user growth may continue for some time. Even if the company grows revenue at a slower rate of 15% going forward, it would still pass the $ 174 billion revenue milestone needed for a $ 1,000 billion market cap by 2036.
Keep in mind that Square will be increasing its revenue primarily by adding Cash App users and evolving the Cash App ecosystem, which it has already done to do. Investors should watch for growth in user numbers – especially after the Afterpay acquisition closes next year – as the company lays the foundation it needs to become a global leader in finance.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.