Thread by @FoolMCochrane

1/ Square $SQ reported its 2019 Q3 earnings yesterday and was +5% today.

Of course, it is also still down -17% over past year, even after today's bump.

Or up 428% past 3 years -- so perspective matters!

Let's dig deeper to see what's going on...

2/ Growth of relevant metrics continue to look great.
Total revenue $1.27B, +44% YOY
Gross margin $500M, +42% YOY
Gross payment volume (GPV) $28.2B, +25% YOY
Adj EBITDA $131M, +85% YOY

Robust growth, but $SQ's valuation still steep, about 14x sales

3/ Yes, $SQ's core business remains payment processing. No, there is nothing special about offering a commoditized service.
When $SQ founded, special b/c it offered mobile solution. Now that's common too.
What makes $SQ special is merchant ecosystem!

4/ Seller ecosystem includes: payment processing, payroll, invoices, specialized point-of-sale for niche industries, Square Capital (small business loans), business debit card (w/free, immediate access to money from sales), marketing, online store integration, etc.

5/ These services, along w/ Cash App, accounted for in subscription and services-based revenue segment: $280M, +68% YOY

High margin too! Segment's gross profit: $216M,
+82% YOY

Primarily driven by $SQ Capital, Instant Deposit, and Cash App

6/ Not just high-margin revenue stream! This ecosystem makes it difficult for merchants to leave for payment processing competitor. What small business would leave these tools behind for small price difference? Very few!

Thus ecosystem ➡️ high switching costs ➡️ economic moat

7/ But $SQ more than seller ecosystem, also growing consumer-facing Cash App ecosystem.

Cash App revenue (excluding $BTC): $159M, +115% YOY Cash App gross profit: $121M, +125% YOY

Cash App: Low customer acquisition costs, largely retains MAUs, margins improving every year

8/ Cash App’s ecosystem of differentiated products is growing, allowing customers to send, spend, store, and now invest money by buying fractional shares of stocks for as little as $1, no commission fees

All in one financial app, popular among traditionally under-banked

9/ Redesigned Cash App’s interface makes its products more discoverable and has driven increased product adoption of Bitcoin and Cash Card: First-time bitcoin buyers have almost doubled, Cash Card orders have seen a meaningful uplift

fool.com/investing/2019…

10/ With two powerful, financial ecosystems, synergies can be created by bringing two together, making each stronger.

E.g. Sellers can now pay employees instantly via Cash App.

Long $SQ