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2021-07-16

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Square: Cash App Is A Can't-Miss Opportunity

Summary In this article, I analyze Cash App's viral growth and how Square will evolve and monetize

Square: Cash App Is A Can't-Miss Opportunity

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I will highlight how Cash App can leverage Tidal to create a platform to better empowers musicians to participate in the economy.</li>\n <li>According to my estimates, Cash App is worth $73.5 billion today, which is currently ~65% of Square's current market cap.</li>\n <li>I'm bullish on Square and the ecosystem that it's creating within Cash App.</li>\n</ul>\nInvestment Thesis\nCash App from Square(NYSE:SQ)is due for a large expansion in its offerings, similar to how the Seller ecosystem evolved over the last 10 years. The average bank generates about$880in revenue per active digital customer, while Cash App only generated$41per active user to end 2020. In order for Square to monetize Cash App, it must continue to build its platform and expand its services by attracting new users and offering new products.\nSquare will achieve this by extending economic empowerment to individuals just as its Seller ecosystem extended its customer’s business capabilities. Square recentlyacquired Tidal, Jay-Z’s artist-backed music streaming service. This is an opportunity for Cash App to work for individuals, specifically musicians.\n<blockquote>\n Given what Square has been able to do for sellers of all sizes and individuals through Cash App, we believe we can now work for artists to see the same success for them, and us. We’re going to start small and focus on the most critical needs of artists and growing their fan bases.-Jack Dorsey, Square CEO\n</blockquote>\nIn this article, I will highlight the opportunity Square has to expand Cash App’s ecosystem to empower individuals to better participate in the economy, specifically illustrating how its recent Tidal acquisition could pay off.\nThis is how Cash App operates under Square according toCash App's website,\n<blockquote>\n Cash App is redefining the world’s relationship with money by making it more relatable, instantly available and universally accessible.\"\n</blockquote>\nThis mission will result in a huge increase in Cash App’s average revenue per user, making Square a buy for long-term investors today.\nSquare Recap\nSince Square was founded by Jack Dorsey in 2009, the company’s core mission has remained the same: \"To empower businesses, sellers, and individuals toparticipate in the economy.\"Square carries out this mission through its Sellers ecosystem and Cash App.\nSellers ecosystem: It enables businesses to use their computers or mobile devices as a payment or point-of-sale solution for business transactions. Square has taken the Sellers ecosystem a step further by utilizing its customers’ data so they can better engage their customers and now Square Capitaloffers loansfor small businesses. This ecosystem is starting to mature and is scalable.\nCashApp: Offers a platform for individuals to spend, send, or receive money as well as invest in stocks or bitcoin. Cash App includes Square’s Cash Card which operates like a debit card for one’s Cash App and offers “boosts,” which allow its cash card customers to save money at different restaurants or merchants.\n<img src=\"https://static.tigerbbs.com/268d4a4adac2830ab266aeeb4ab31624\" tg-width=\"1280\" tg-height=\"650\" referrerpolicy=\"no-referrer\">\nSource:Square September 2020 Investor Presentation\nAs can be seen above, Square expanded its Sellers ecosystem by adding product offerings for its customers, while it's capitalizing on these opportunities by becoming an industrial bank. Now, when Square Capital provides a loan to a customer, the loan can be issued fromSquare’s bank. This is a win for Square because it provides the loan for its customers’ business to operate, so it’s making money off the loan as well as the sales its customers generate using Square’s point-of-sale.\nProgression of Cash App\n<img src=\"https://static.tigerbbs.com/44c3376c59fbc317eea20722102aacc7\" tg-width=\"1162\" tg-height=\"1014\" referrerpolicy=\"no-referrer\">\nSource:www.wokfofharcourtstreet.com\n<ul>\n <li>Cash App entered 2021 with 36 million monthly active users and over100 milliondownloads</li>\n <li>Cash App delivered a strong Q1 of 2021 generating$529 million, up 139% year-over-year (excluding bitcoin revenue)</li>\n <li>Gross profits for Cash App were$420.5 millionin Q1, equivalent to a 79.5% gross profit margin (excluding bitcoin)</li>\n</ul>\nCash App is crushing it and a large part of its success is the culture that’s implemented by Square in order to grow Cash App’s monthly active users. Cash App has an extremely low average customer acquisition cost of less than$5. Cash App accomplished this by partnering with celebrities, specifically music artists, to offer promotions and cash giveaways using Twitter and other social media sites (Instagram and Tik-Tok specifically). By doing this, celebrities expose their fans and followers to Cash App, and in turn, this triggers a network effect. The artists get more attention and positive publicity, while so does Cash App. For example, when Kim Kardashian announced on Twitter she’d give away $500,000 through Cash App, it resulted in Cash App reaching a lot of Twitter accounts. Cash App reaches at least50,000 uniqueTwitter users per Cash App post, similar to these below.\n<img src=\"https://static.tigerbbs.com/b95e01939e87e5df4423f20ae4e798e0\" tg-width=\"1280\" tg-height=\"530\">\nSource:www.bettermarketing.pub\nCash App achieved viral growth cost effectively and is building its user base, but Cash App’s services are what leads to retaining and monetizing its user base. Some services we’ve seen thus far are investing in stocks and Bitcoin while Square has not lost sight of other opportunities as Cash App envisions further enabling its users.\n<img src=\"https://static.tigerbbs.com/89d743061b76f93ea003da8155a86962\" tg-width=\"1280\" tg-height=\"581\" referrerpolicy=\"no-referrer\">\nSource: Square September 2020 Investors Presentation\nNow that we understand Cash App’s business model and why it works, let us explore how Tidal fits in with Cash App’s mission. Ultimately, this will create a platform for musicians to operate as independent, small businesses.\nTidal + Cash App\nOn March 4, 2021, Squareacquired Tidalfor $297 million, only 4.2% of Square’s cash on its balance sheet. Tidal is unique because it strives to create afair playing fieldfor its artists and is backed by artist-owners. These artists will retain a certain level of ownership in Tidal moving forward.\nThese are some of Tidal’sartist-owners:\n<ul>\n <li>Alicia Keys</li>\n <li>Beyoncé</li>\n <li>Calvin Harris</li>\n <li>Coldplay's Chris Martin</li>\n <li>Daft Punk</li>\n <li>Jack White</li>\n <li>Jason Aldean</li>\n <li>Shawn \"JAY-Z\" Carter</li>\n <li>Kanye West</li>\n <li>Lil Wayne</li>\n <li>Madonna</li>\n <li>Rihanna</li>\n</ul>\nWith these high-profile names and Jay-Z at the helm, Tidal got a lot of buzz but didn’t survive in a crowded streaming market. With these artists on board, Square is building its army and could use these artists to promote Cash App to continue to achieve a network effect. However, Jack Dorsey is rather focused on ensuring that musicians can better participate in the economy.\n<img src=\"https://static.tigerbbs.com/75ae975c922fd634dadee20d290d23a0\" tg-width=\"1116\" tg-height=\"284\">\nSource:twitter.com\nIn the same Twitter thread, Dorsey acknowledges plans for Square to “start small” by focusing on the most critical needs for musicians and by growing their fan bases. Square will achieve this by creating new listening experiences for fans, simpleintegration of merchandise sales, as well as new revenue streams for musicians.\nStreaming changed the way people consume their music as the premier services offer platforms for consumers to listen to all their favorite artists for an affordable monthly price (about $10 per month for the top services). These services were put in place to combat music piracy, as the price of a CD or songwent to $0for people who knew how to use peer-to-peer file-sharing. Even though streaming sites were intended to level the playing field for musicians, it resulted in musicians being paid less for their music.\nTop paying streaming services pay out about$4 per 1,000 song streams, making it difficult for musicians (especially smaller, up-and-coming musicians) to make a living off their music. This forced musicians to turn to other opportunities to counteract the lack of revenue from their songs, specifically by selling merchandise. The global music merchandise market was worth$3.5 billionin 2018, a 13.4% CAGR over the prior three years, and Square believes it can further empower these artists.\n<ul>\n <li>Merchandise Opportunity - by leveraging Tidal’s streaming service (the musicians and Tidal subscribers) with Cash App, Square could offer the ideal place for musicians to sell their merchandise (ie. creating a Shopify for musicians to monetize their merchandise, their brand, or even special experiences). Square can facilitate sales between musicians and Cash App users, while this strategy engages and monetizes the current Cash App users, it will surely attract more new users to Cash App.</li>\n</ul>\nIf Square brings this idea to fruition, it would benefit both musicians and increase Cash App’s revenue stream. Currently, Square charges a2.95%fee when one of its Sellers accepts a transaction, but Square only keeps $0.50 or 1% of the purchase value as the rest goes to middlemen, the banks, and third parties. If Square creates a commerce platform for Tidal musicians to sell merchandise using Cash App, the artists could be paid directly, without middlemen, while Square could continue to charge a 2.95% fee for facilitating transactions, or could lower the fee to 1% to incentivize Cash App growth. Either way, it’s a win-win for musicians and Square:\n<ul>\n <li>Musicians: Can directly sell to their fan bases, while directly receiving the funds.</li>\n <li>Square: Grows Cash App by expanding the opportunity individuals have to spend their money while increasing its take rate.</li>\n</ul>\nGiven the size of the global music merchandise market, $3.5 billion in 2018, and 13% growth over the previous three years, this is an ideal market for Square to unlock to see if it can empower individuals. Cash App grows virally by utilizing musicians to reach more people on social media, so this could be a natural path for Cash App to grow its user base while helping musicians reach current Cash App users. This also brings economic empowerment to musicians because Square will expand their revenue streams by letting the musicians sell directly to their fans.\n**Assumptions: Square keeps its take rate at 2.95%\n**The music merchandise industry grows 8% annually through 2030\nThe model above is a conservative projection based on Square creating a platform for Tidal and Cash App to disrupt the merchandise market for musicians. If Square achieves this, Square will continue to create a network effect by drawing musicians to the platform to sell, while it also brings monetization and more users to Cash App. This results in a network effect, hence why I assumed that Square’s market share will increase over time. As Cash App’s users are expected to increase, the data in this model may be too conservative, if musicians really flocked to Tidal + Cash App to distribute content or merchandise.\nThe column on the right is revenue just from merchandise sold by musicians, it doesn’t consider that as there are more users on Cash App, Square can monetize those users through the solutions it's already established such as peer-to-peer transactions or investing in stocks or bitcoin.\nLong-Term Agenda: Redefine How People Use Money\nThis is just touching the surface of how Square is growing Cash App but there are other use-cases for combining Tidal and Cash App, as well as opportunities for other types of creators and artists. I'm going to list a few below to highlight the early stages we are in, but rather shine light on the endless possibilities, as we're in a time of technological innovation and blockchain is still in its infancy.\n<img src=\"https://static.tigerbbs.com/8f53b32f2161c803a402a1cf41302026\" tg-width=\"1280\" tg-height=\"462\" referrerpolicy=\"no-referrer\">\nSource: Square September 2020 Investors Presentation\n<ul>\n <li>Concert by Tidal: In 2012, Jay-Z founded Made in America, a huge annual music festival that is held in Philadelphia and is meant to bring together music and culture. The event is produced by Live Nation, (Jay-Z’s production company Rock Nation operates under them) and attracted more than100,000 peopleover the two-day festival in 2019 with 60 artists performing. In its first year, in 2012, the concert grossed$5 millionin ticket sales with 80,000 attendees. If Tidal and Cash App teamed to host an annual concert, it could be another way for Square to partner with musicians so they can be compensated fairly for performing (so they don’t have to deal with all the middlemen and fees), while pushing ticket sales through Cash App. Either way, this could be a big opportunity for Cash App to gain more exposure and users while promoting Tidal and its musicians.</li>\n <li>NFT’s for Artists: Non-fungible tokens are units of stored data that certify a digital asset to be unique; such as a photo, video, song, album, or any other digital file. This opportunity is unique because it gives the creator of the content control full control of the content, so there's no third party for a content creator to go through in order for them to sell and monetize their content. The creator is in control of the token and controls the licensing for the file while being able to monitor the transactions that take place on the network.</li>\n</ul>\nNFT sales reached$2.5 billionin the first half of 2021 and artists are doing more and more regarding music sales using NFTs. For example, Kings of Leon recently released their new album as an NFT and generated$2 millionin sales. Kings of Leon dropped three different tokens for the launch: one being the special album package, the second token offers unique perks like gettingfront-row seats for lifeat Kings of Leon concerts, and the third is for exclusive visual art. This is clearly unique and innovative as it gives the artist a way to grasp their followers while engaging with fans in new ways.\n<ul>\n <li>Opportunity for artists to get funding: For up-and-coming musicians who don't have access to funding, NFTs could be a way for them to access funds. For example, you can create an NFT for an upcoming album or song, and then sell the NFT to raise capital. In exchange, the buyers of the NFT will have some ownership of the upcoming project and receive royalties if the project gets licensed and played.</li>\n</ul>\nThis is in Square’s space because this will extend artists' capabilities to raise funds for their projects, in turn, the holders of the NFT can have “equity” and invest in their favorite artists.\n<ul>\n <li>Content Creators: The digital content creation market is expected to grow 12% annually through 2030 to reach$38.2 billion. If Square successfully creates a platform to empower musicians, I believe that Square could scale to bring those same solutions to any type of artist or content creator. Square’s goal is to achieve economic empowerment for everyone, and by extending its platform to all content creators to monetize their brand and digital assets, it could change the way fans support their favorite content creators. If Square unlocks this market, it would result in a huge jump in Cash App’s revenue because Square is building the network, through Cash App, for artists to directly reach and sell. Cash App's large user base may incentivize artists using this platform to gain exposure.</li>\n</ul>\nOne area that I think this could be unique is for collegiate athletes. Now that college athletes can be paid based on theirname, image, or likeliness(NIL), Cash App could be a medium for athletes to engage fans or their community and be paid. It only became legal for student athletes to be compensated for their NIL, but this could be an area Square looks to help, as empowering individuals to participate in the economy is Square’s focus.\nFuture Revenue Projections\n<table>\n <tbody>\n <tr>\n <td>Year</td>\n <td>ARPU</td>\n <td>Active Users (in millions)</td>\n <td>Revenue ($ in billions)</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$41</td>\n <td>36</td>\n <td>$ 1.476</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>$150</td>\n <td>70</td>\n <td>$ 10.5</td>\n </tr>\n </tbody>\n</table>\nThe estimates for 2026 are my opinion of how Square capitalizes on the viral growth of Cash App through monetization. Cash App's future active users is a conservative estimate of how I think Cash App will grow by 2026 as its monthly active users have increased by 140% since 2018. In 2017, Cash App generated $15 per user while it had only 7 million monthly active users, yet in 2021, Cash App has 36 million users and generates over double the ARPU it did in 2017. Hence, why I think the $150 ARPU is realistic by 2026, as I’ve highlighted that Cash App has long-term plans for changing the way that people interact with money.\nUsing Cash App’s first quarter revenue ($529M) and using a 35% free cash flow margin to determine Cash App’s free cash flow today, Cash App generates $1.48 in free cash flow per share.\nHere’s the value of Cash App on a stand-alone basis (excluding Bitcoin revenue).\n<img src=\"https://static.tigerbbs.com/e7f81ef5b5c6092c50334b2916dfcac7\" tg-width=\"730\" tg-height=\"574\" referrerpolicy=\"no-referrer\">\nSource: L.A. Stevens Valuation Model\nCash App is worth ~$146 today while Square is trading around $245. For Cash App’s free cash flow margin, 35% is conservative as Cash App sports 80% gross profit margins, while 30% annualized free cash flow growth is attainable because Cash App’s annual revenue increased by137% in 2020 and 139% year-over-year in Q1 of 2021.\nCash App makes up 65% of Squares market cap today, as Cash App is worth 73.5 billion in market cap based on its present value. With Square’s market cap of $110 billion, the stock is still in buy territory as growth in the Cash App ecosystem may not be reflected where the stock’s trading today.\nConclusion\nCash App’s growth since 2017 is remarkable, considering that it went from 3 million users at the end of 2016 to over 36 million monthly active users today. Square is in a great position today to cash in on Cash App’s strong foundation by taking it to the next step - by building its ecosystem and becoming a platform for commerce and specifically for individuals. Over the coming years, we will see how Square incorporates more services to provide value to both individual sellers or buyers, but Square has a long-term mindset to disrupt people’s relationship with money.\nHere is a quote from the head of Cash App, Brian Grassadonia, from Square’s lastkeynote presentation.\n<blockquote>\n I think Apple has done this (redefining an industry) when we think about our relationship with technology, pre, and post-Apple. I think Google has done this when we think about our relationship with information, pre, and post-Google. And when I talk about redefining the world's relationship with money, I'm talking about redefining the world's relationship with money with similar breadth and scope that those organizations have redefined the world's relationship with their industries. That is a very, very big - you kind of can't even imagine what that means, right, when you're kind of sitting in it. You only really kind of identify that once you've already done it.”\n</blockquote>\nTo wrap up, Square is going to be one of the most disruptive companies of this generation. With superior leadership, specifically with Brian Grassadonia as head of Cash App and Jack Dorsey as CEO of Square, the company remains fixated on the long-term growth prospects that its original two ecosystems can leverage to further economically empower individuals. We will see how Square ultimately plans to leverage its Tidal acquisition, but there are plenty of opportunities for Square to connect musicians to consumers, as I’ve highlighted.\nAt Beating The Market, we've been long on Square since it was trading around $80 a year ago, when we first analyzed Cash App's growth, feel free to check out this notehere. As Cash App remains in growth mode today, Square’s stock is still a buy trading below $250 for those looking to buy and hold for the long-term.\nThanks for reading and happy investing!","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Square: Cash App Is A Can't-Miss Opportunity</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSquare: Cash App Is A Can't-Miss Opportunity\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-16 14:01 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4439368-square-cash-app-is-a-cant-miss-opportunity>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nIn this article, I analyze Cash App's viral growth and how Square will evolve and monetize the App's ecosystem, the same way that Square evolved its Seller ecosystem.\nCash App has 36 million ...\n\n<a href=\"https://seekingalpha.com/article/4439368-square-cash-app-is-a-cant-miss-opportunity\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SQ":"Block"},"source_url":"https://seekingalpha.com/article/4439368-square-cash-app-is-a-cant-miss-opportunity","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1188033080","content_text":"Summary\n\nIn this article, I analyze Cash App's viral growth and how Square will evolve and monetize the App's ecosystem, the same way that Square evolved its Seller ecosystem.\nCash App has 36 million monthly active users, which is up 140% since 2018, and it generated $529 million in the first quarter of 2021 (excluding Bitcoin).\nSquare recently acquired Tidal, a music streaming platform. I will highlight how Cash App can leverage Tidal to create a platform to better empowers musicians to participate in the economy.\nAccording to my estimates, Cash App is worth $73.5 billion today, which is currently ~65% of Square's current market cap.\nI'm bullish on Square and the ecosystem that it's creating within Cash App.\n\nInvestment Thesis\nCash App from Square(NYSE:SQ)is due for a large expansion in its offerings, similar to how the Seller ecosystem evolved over the last 10 years. The average bank generates about$880in revenue per active digital customer, while Cash App only generated$41per active user to end 2020. In order for Square to monetize Cash App, it must continue to build its platform and expand its services by attracting new users and offering new products.\nSquare will achieve this by extending economic empowerment to individuals just as its Seller ecosystem extended its customer’s business capabilities. Square recentlyacquired Tidal, Jay-Z’s artist-backed music streaming service. This is an opportunity for Cash App to work for individuals, specifically musicians.\n\n Given what Square has been able to do for sellers of all sizes and individuals through Cash App, we believe we can now work for artists to see the same success for them, and us. We’re going to start small and focus on the most critical needs of artists and growing their fan bases.-Jack Dorsey, Square CEO\n\nIn this article, I will highlight the opportunity Square has to expand Cash App’s ecosystem to empower individuals to better participate in the economy, specifically illustrating how its recent Tidal acquisition could pay off.\nThis is how Cash App operates under Square according toCash App's website,\n\n Cash App is redefining the world’s relationship with money by making it more relatable, instantly available and universally accessible.\"\n\nThis mission will result in a huge increase in Cash App’s average revenue per user, making Square a buy for long-term investors today.\nSquare Recap\nSince Square was founded by Jack Dorsey in 2009, the company’s core mission has remained the same: \"To empower businesses, sellers, and individuals toparticipate in the economy.\"Square carries out this mission through its Sellers ecosystem and Cash App.\nSellers ecosystem: It enables businesses to use their computers or mobile devices as a payment or point-of-sale solution for business transactions. Square has taken the Sellers ecosystem a step further by utilizing its customers’ data so they can better engage their customers and now Square Capitaloffers loansfor small businesses. This ecosystem is starting to mature and is scalable.\nCashApp: Offers a platform for individuals to spend, send, or receive money as well as invest in stocks or bitcoin. Cash App includes Square’s Cash Card which operates like a debit card for one’s Cash App and offers “boosts,” which allow its cash card customers to save money at different restaurants or merchants.\n\nSource:Square September 2020 Investor Presentation\nAs can be seen above, Square expanded its Sellers ecosystem by adding product offerings for its customers, while it's capitalizing on these opportunities by becoming an industrial bank. Now, when Square Capital provides a loan to a customer, the loan can be issued fromSquare’s bank. This is a win for Square because it provides the loan for its customers’ business to operate, so it’s making money off the loan as well as the sales its customers generate using Square’s point-of-sale.\nProgression of Cash App\n\nSource:www.wokfofharcourtstreet.com\n\nCash App entered 2021 with 36 million monthly active users and over100 milliondownloads\nCash App delivered a strong Q1 of 2021 generating$529 million, up 139% year-over-year (excluding bitcoin revenue)\nGross profits for Cash App were$420.5 millionin Q1, equivalent to a 79.5% gross profit margin (excluding bitcoin)\n\nCash App is crushing it and a large part of its success is the culture that’s implemented by Square in order to grow Cash App’s monthly active users. Cash App has an extremely low average customer acquisition cost of less than$5. Cash App accomplished this by partnering with celebrities, specifically music artists, to offer promotions and cash giveaways using Twitter and other social media sites (Instagram and Tik-Tok specifically). By doing this, celebrities expose their fans and followers to Cash App, and in turn, this triggers a network effect. The artists get more attention and positive publicity, while so does Cash App. For example, when Kim Kardashian announced on Twitter she’d give away $500,000 through Cash App, it resulted in Cash App reaching a lot of Twitter accounts. Cash App reaches at least50,000 uniqueTwitter users per Cash App post, similar to these below.\n\nSource:www.bettermarketing.pub\nCash App achieved viral growth cost effectively and is building its user base, but Cash App’s services are what leads to retaining and monetizing its user base. Some services we’ve seen thus far are investing in stocks and Bitcoin while Square has not lost sight of other opportunities as Cash App envisions further enabling its users.\n\nSource: Square September 2020 Investors Presentation\nNow that we understand Cash App’s business model and why it works, let us explore how Tidal fits in with Cash App’s mission. Ultimately, this will create a platform for musicians to operate as independent, small businesses.\nTidal + Cash App\nOn March 4, 2021, Squareacquired Tidalfor $297 million, only 4.2% of Square’s cash on its balance sheet. Tidal is unique because it strives to create afair playing fieldfor its artists and is backed by artist-owners. These artists will retain a certain level of ownership in Tidal moving forward.\nThese are some of Tidal’sartist-owners:\n\nAlicia Keys\nBeyoncé\nCalvin Harris\nColdplay's Chris Martin\nDaft Punk\nJack White\nJason Aldean\nShawn \"JAY-Z\" Carter\nKanye West\nLil Wayne\nMadonna\nRihanna\n\nWith these high-profile names and Jay-Z at the helm, Tidal got a lot of buzz but didn’t survive in a crowded streaming market. With these artists on board, Square is building its army and could use these artists to promote Cash App to continue to achieve a network effect. However, Jack Dorsey is rather focused on ensuring that musicians can better participate in the economy.\n\nSource:twitter.com\nIn the same Twitter thread, Dorsey acknowledges plans for Square to “start small” by focusing on the most critical needs for musicians and by growing their fan bases. Square will achieve this by creating new listening experiences for fans, simpleintegration of merchandise sales, as well as new revenue streams for musicians.\nStreaming changed the way people consume their music as the premier services offer platforms for consumers to listen to all their favorite artists for an affordable monthly price (about $10 per month for the top services). These services were put in place to combat music piracy, as the price of a CD or songwent to $0for people who knew how to use peer-to-peer file-sharing. Even though streaming sites were intended to level the playing field for musicians, it resulted in musicians being paid less for their music.\nTop paying streaming services pay out about$4 per 1,000 song streams, making it difficult for musicians (especially smaller, up-and-coming musicians) to make a living off their music. This forced musicians to turn to other opportunities to counteract the lack of revenue from their songs, specifically by selling merchandise. The global music merchandise market was worth$3.5 billionin 2018, a 13.4% CAGR over the prior three years, and Square believes it can further empower these artists.\n\nMerchandise Opportunity - by leveraging Tidal’s streaming service (the musicians and Tidal subscribers) with Cash App, Square could offer the ideal place for musicians to sell their merchandise (ie. creating a Shopify for musicians to monetize their merchandise, their brand, or even special experiences). Square can facilitate sales between musicians and Cash App users, while this strategy engages and monetizes the current Cash App users, it will surely attract more new users to Cash App.\n\nIf Square brings this idea to fruition, it would benefit both musicians and increase Cash App’s revenue stream. Currently, Square charges a2.95%fee when one of its Sellers accepts a transaction, but Square only keeps $0.50 or 1% of the purchase value as the rest goes to middlemen, the banks, and third parties. If Square creates a commerce platform for Tidal musicians to sell merchandise using Cash App, the artists could be paid directly, without middlemen, while Square could continue to charge a 2.95% fee for facilitating transactions, or could lower the fee to 1% to incentivize Cash App growth. Either way, it’s a win-win for musicians and Square:\n\nMusicians: Can directly sell to their fan bases, while directly receiving the funds.\nSquare: Grows Cash App by expanding the opportunity individuals have to spend their money while increasing its take rate.\n\nGiven the size of the global music merchandise market, $3.5 billion in 2018, and 13% growth over the previous three years, this is an ideal market for Square to unlock to see if it can empower individuals. Cash App grows virally by utilizing musicians to reach more people on social media, so this could be a natural path for Cash App to grow its user base while helping musicians reach current Cash App users. This also brings economic empowerment to musicians because Square will expand their revenue streams by letting the musicians sell directly to their fans.\n**Assumptions: Square keeps its take rate at 2.95%\n**The music merchandise industry grows 8% annually through 2030\nThe model above is a conservative projection based on Square creating a platform for Tidal and Cash App to disrupt the merchandise market for musicians. If Square achieves this, Square will continue to create a network effect by drawing musicians to the platform to sell, while it also brings monetization and more users to Cash App. This results in a network effect, hence why I assumed that Square’s market share will increase over time. As Cash App’s users are expected to increase, the data in this model may be too conservative, if musicians really flocked to Tidal + Cash App to distribute content or merchandise.\nThe column on the right is revenue just from merchandise sold by musicians, it doesn’t consider that as there are more users on Cash App, Square can monetize those users through the solutions it's already established such as peer-to-peer transactions or investing in stocks or bitcoin.\nLong-Term Agenda: Redefine How People Use Money\nThis is just touching the surface of how Square is growing Cash App but there are other use-cases for combining Tidal and Cash App, as well as opportunities for other types of creators and artists. I'm going to list a few below to highlight the early stages we are in, but rather shine light on the endless possibilities, as we're in a time of technological innovation and blockchain is still in its infancy.\n\nSource: Square September 2020 Investors Presentation\n\nConcert by Tidal: In 2012, Jay-Z founded Made in America, a huge annual music festival that is held in Philadelphia and is meant to bring together music and culture. The event is produced by Live Nation, (Jay-Z’s production company Rock Nation operates under them) and attracted more than100,000 peopleover the two-day festival in 2019 with 60 artists performing. In its first year, in 2012, the concert grossed$5 millionin ticket sales with 80,000 attendees. If Tidal and Cash App teamed to host an annual concert, it could be another way for Square to partner with musicians so they can be compensated fairly for performing (so they don’t have to deal with all the middlemen and fees), while pushing ticket sales through Cash App. Either way, this could be a big opportunity for Cash App to gain more exposure and users while promoting Tidal and its musicians.\nNFT’s for Artists: Non-fungible tokens are units of stored data that certify a digital asset to be unique; such as a photo, video, song, album, or any other digital file. This opportunity is unique because it gives the creator of the content control full control of the content, so there's no third party for a content creator to go through in order for them to sell and monetize their content. The creator is in control of the token and controls the licensing for the file while being able to monitor the transactions that take place on the network.\n\nNFT sales reached$2.5 billionin the first half of 2021 and artists are doing more and more regarding music sales using NFTs. For example, Kings of Leon recently released their new album as an NFT and generated$2 millionin sales. Kings of Leon dropped three different tokens for the launch: one being the special album package, the second token offers unique perks like gettingfront-row seats for lifeat Kings of Leon concerts, and the third is for exclusive visual art. This is clearly unique and innovative as it gives the artist a way to grasp their followers while engaging with fans in new ways.\n\nOpportunity for artists to get funding: For up-and-coming musicians who don't have access to funding, NFTs could be a way for them to access funds. For example, you can create an NFT for an upcoming album or song, and then sell the NFT to raise capital. In exchange, the buyers of the NFT will have some ownership of the upcoming project and receive royalties if the project gets licensed and played.\n\nThis is in Square’s space because this will extend artists' capabilities to raise funds for their projects, in turn, the holders of the NFT can have “equity” and invest in their favorite artists.\n\nContent Creators: The digital content creation market is expected to grow 12% annually through 2030 to reach$38.2 billion. If Square successfully creates a platform to empower musicians, I believe that Square could scale to bring those same solutions to any type of artist or content creator. Square’s goal is to achieve economic empowerment for everyone, and by extending its platform to all content creators to monetize their brand and digital assets, it could change the way fans support their favorite content creators. If Square unlocks this market, it would result in a huge jump in Cash App’s revenue because Square is building the network, through Cash App, for artists to directly reach and sell. Cash App's large user base may incentivize artists using this platform to gain exposure.\n\nOne area that I think this could be unique is for collegiate athletes. Now that college athletes can be paid based on theirname, image, or likeliness(NIL), Cash App could be a medium for athletes to engage fans or their community and be paid. It only became legal for student athletes to be compensated for their NIL, but this could be an area Square looks to help, as empowering individuals to participate in the economy is Square’s focus.\nFuture Revenue Projections\n\n\n\nYear\nARPU\nActive Users (in millions)\nRevenue ($ in billions)\n\n\n2021\n$41\n36\n$ 1.476\n\n\n2026\n$150\n70\n$ 10.5\n\n\n\nThe estimates for 2026 are my opinion of how Square capitalizes on the viral growth of Cash App through monetization. Cash App's future active users is a conservative estimate of how I think Cash App will grow by 2026 as its monthly active users have increased by 140% since 2018. In 2017, Cash App generated $15 per user while it had only 7 million monthly active users, yet in 2021, Cash App has 36 million users and generates over double the ARPU it did in 2017. Hence, why I think the $150 ARPU is realistic by 2026, as I’ve highlighted that Cash App has long-term plans for changing the way that people interact with money.\nUsing Cash App’s first quarter revenue ($529M) and using a 35% free cash flow margin to determine Cash App’s free cash flow today, Cash App generates $1.48 in free cash flow per share.\nHere’s the value of Cash App on a stand-alone basis (excluding Bitcoin revenue).\n\nSource: L.A. Stevens Valuation Model\nCash App is worth ~$146 today while Square is trading around $245. For Cash App’s free cash flow margin, 35% is conservative as Cash App sports 80% gross profit margins, while 30% annualized free cash flow growth is attainable because Cash App’s annual revenue increased by137% in 2020 and 139% year-over-year in Q1 of 2021.\nCash App makes up 65% of Squares market cap today, as Cash App is worth 73.5 billion in market cap based on its present value. With Square’s market cap of $110 billion, the stock is still in buy territory as growth in the Cash App ecosystem may not be reflected where the stock’s trading today.\nConclusion\nCash App’s growth since 2017 is remarkable, considering that it went from 3 million users at the end of 2016 to over 36 million monthly active users today. Square is in a great position today to cash in on Cash App’s strong foundation by taking it to the next step - by building its ecosystem and becoming a platform for commerce and specifically for individuals. Over the coming years, we will see how Square incorporates more services to provide value to both individual sellers or buyers, but Square has a long-term mindset to disrupt people’s relationship with money.\nHere is a quote from the head of Cash App, Brian Grassadonia, from Square’s lastkeynote presentation.\n\n I think Apple has done this (redefining an industry) when we think about our relationship with technology, pre, and post-Apple. I think Google has done this when we think about our relationship with information, pre, and post-Google. And when I talk about redefining the world's relationship with money, I'm talking about redefining the world's relationship with money with similar breadth and scope that those organizations have redefined the world's relationship with their industries. That is a very, very big - you kind of can't even imagine what that means, right, when you're kind of sitting in it. You only really kind of identify that once you've already done it.”\n\nTo wrap up, Square is going to be one of the most disruptive companies of this generation. With superior leadership, specifically with Brian Grassadonia as head of Cash App and Jack Dorsey as CEO of Square, the company remains fixated on the long-term growth prospects that its original two ecosystems can leverage to further economically empower individuals. We will see how Square ultimately plans to leverage its Tidal acquisition, but there are plenty of opportunities for Square to connect musicians to consumers, as I’ve highlighted.\nAt Beating The Market, we've been long on Square since it was trading around $80 a year ago, when we first analyzed Cash App's growth, feel free to check out this notehere. As Cash App remains in growth mode today, Square’s stock is still a buy trading below $250 for those looking to buy and hold for the long-term.\nThanks for reading and happy investing!","news_type":1},"isVote":1,"tweetType":1,"viewCount":129,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}