Today I will talk about a stock that can be held for a long time was born in the field of electronic payment.
That is Square, another electronic payment company founded by Twitter co-founder Jack Dorcy.
In China, the development of payment methods jumped directly from debit cards to electronic payment, skipping the era of credit card payment, and there is no large-scale popularization. This is due to the continuous innovation of Alipay and Tencent Pay.
In the United States, credit card payment was very popular in the past, and the development of electronic payment was relatively slow. Therefore, domestic investors who often use Alipay and WeChat, look at Square's business, it will be very easy to understand, and the development path is relatively easy to predict.
Speaking of Square, I have to mention another giant in the electronic payment industry, PayPal. The predecessor of PayPal was Max Levchin, Peter Thiel, and Luke Nosek, founded by Confinity in 1998, and Musk’s X.com merged, and then acquired by eBay.
However, after being acquired by eBay, PayPal lost its innovation and became a collection tool for eBay merchants. Other than that, there was no development. Although PayPal at that time can also transfer money between individuals. However, the cost of transfer is very high, close to 4%. Such a high transfer cost makes the use of PayPal outside of eBay very low. After being acquired, the founding team members of PayPal also left.
In the past 13 years, PayPal has always given the impression that it is just a small payment button. eBay has never fully utilized PayPal's "first mover" status. On the contrary, eBay lost precious time to PayPal, during which time its competitors emerged. This delay caused PayPal to lose the opportunity to dominate today's digital payment industry.
In 2009, the concept of legitimate mobile payment began to be put forward, the mobile payment market began to heat up, and various related technologies gradually matured. Internet companies, communication equipment companies, and operators in all regions of the world are plotting how to cut the hundreds of billions of cakes in the future. At the same time, when smartphones began to disrupt the feature phone market, Square was born.
Square's main application product is the Square Register for merchants, a software that has the ambition to replace traditional POS machines when it is released. You know, the market size of POS machines at that time was quite huge. The North American market alone exceeded 10 billion U.S. dollars, and the industry was still monopolized. The market share was concentrated in the hands of IT giants such as IBM, HP, and NCR.
The system is almost all Windows, except for a little Linux equipment. The first hardware product Square Reader launched around 2010. The square shape can be inserted into the earphone jack of a smartphone or tablet. This is where the name of Square comes from.
With the application of Square Register, card payment can be realized. As the originator of the mobile card swipe industry, Square's products have been imitated by a large number of technology companies in China, such as Lakota.
With this mini card reader, all merchants can use mobile devices such as mobile phones as a POS machine, allowing customers to sign directly on the device to confirm payment after swiping the card.
More disruptively, Square decided to give the Square Reader this thing to merchants for free. It is important to know that the cost of a traditional desktop POS machine is higher than the average person's one month's rent, and for every application of a Square Reader, customers can get a subsidy of $10.
Why does Square dare to have free software and hardware? Square can get it from the handling fee. Traditional credit card companies charge merchants up to 5% of fees, while Square only charges 2.75%.
To achieve a better promotion effect, Square also launched a monthly package of 275 US dollars per month for small merchants, which is even more favorable than the 2.75% rate. Because of the various types of credit cards and different issuing banks, the credit card rates paid by merchants are often different.
There are not a few merchants who can figure out how much money they have deducted from the bank, and Square can also be favored by merchants with its transparent fees.
After that, Square also released hardware such as Square Stand, an iPad dock with a credit card slot. The principle is similar to that of POS machines that people can usually see. Consumers can swipe their cards and then merchants can operate on the iPad. Another product is the new New Square.
The reader is more than double the size of the old model because the chip card reader with wireless NFC recognition payment function, swiping the card is not swiping the magnetic stripe, but the entire card is stuffed into the Square Reader. Square Reader can be applied to other payment solutions such as Apple Pay and Android Pay.
Small merchant groups are the most neglected group among the more than 20 million individuals in the North American payment market. Among them, many freelancers want to make a little money by setting up stalls on weekends, and work on handicrafts at home on weekdays, and do not have their own fixed stores. Due to a good user experience, the number of Square users has grown rapidly.
The long-term optimism is based on the following factors:
1. Everything is centered on the needs of users.
At the beginning of its establishment, Square did not cooperate with e-commerce websites like other electronic payment companies such as PayPal, Payoneer, stripe, etc., to rapidly develop its user base. Square is a more tortuous development path from offline to online. It starts from serving offline merchants. Square has found two major pain points for small merchants.
The first major pain point is credit card fees. For example, in Australia. For ordinary credit card payments, many merchants have always been confused about the bank’s charging standards and procedures. In addition to the fixed fee, they also need to pay different levels of additional fees based on the transaction amount. The banks are not inclined to Merchants transparently disclose their complex fee structure.
The second biggest pain point is the cost of equipment. You may occasionally see that old POS machine in a small supermarket, and the operating system experience is relatively poor. If you are the owner of a merchant, would you rather not update POS machines and credit card devices to let yourself and your employees get used to this poor collection experience, or pay a regular sum for new equipment and take time to participate in new equipment training?
2. Square has innovative genes
Based on merchant collection, Square also provides merchants with invoicing, financing, takeaway, CRM, and other services, which greatly improves merchants' stickiness, and has established its own bank to better serve merchants.
For end-users, Square launched the Cash App to provide individual users with a financial service ecosystem to help personal financial management, including personal storage, transfer, money collection, consumption, and investment functions.
In 2020, the user growth of CASH APP and the explosive growth of transaction amount, the monthly transaction activity of Cash App has increased by more than 10 times in the past four years, and it has exceeded 36 million in December 2020, a year-on-year increase of more than 50%.
3. Seize the momentum of Bitcoin
Square bought 3318 Bitcoins with USD 170 million in February, at an average cost of approximately USD 51,235. In addition, Square purchased 4,709 BTC in October 2020, which was valued at 50 million U.S. dollars at the time. The current investment is worth 224 million U.S. dollars. The founder Jack Dorcy is also a crazy supporter of Bitcoin.
He firmly believes that Bitcoin will become the currency of the Internet. He not only decides to invest in Bitcoin but also cooperates with singer Jay-Z to establish a Bitcoin Endowment Fund, focusing on the development of cryptocurrency business in India and Africa.
Square's Bitcoin revenue in 2020 was US$4.57 billion, of which US$97 million became the company's gross profit. Bitcoin revenue increased by 785% year on year.
Square’s revenue from selling bitcoin on the Cash App contributed 48% of its total revenue in 2020.
4. Excellent financial situation
For the whole year of Square 2020, GPV totaled US$112.3 billion, a year-on-year increase of 12%, of which 92% came from Seller, and Cash App accounted for an increasing trend; the gross profit retention rate exceeded 130% for three consecutive years, and the annual net transaction fee rate was 1.23%, Reaching the highest level since 2014.
In terms of revenue, the fourth quarter revenue hit a record high, with an annual revenue growth of 101.5% year-on-year, of which 63% came from Cash App.
Profit: The gross profit for the full year of 2020 is US$2.73 billion. Excluding the Caviar business in 2019, gross profit for the whole year of 2020 increased by 48% year-on-year. Among them, Cash App generated a gross profit of US$1.23 billion, accounting for 45%, and the Seller ecosystem generated a gross profit of US$1.51 billion, accounting for Than 55%. In 2020, adjusted EBITDA is US$474 million.
With the increase in the number of users provided by Square on the merchant site and the individual user side, more and more services are provided, and more offline and online consumption scenarios will be combined, and the profit of each customer will increase significantly and grow in the long term. Can be expected.
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