Square (NYSE: SQ), the fintech merchant services provider and the purveyor of the popular money transfer platform Cash App, is higher by decent 6.41% year-to-date.
That market-lagging performance is the symptom of growth stocks being under pressure through much of the first half of the year, but Square’s long-term track record is impressive on the whole. Moreover, if one research firm is correct, much more upside is in store for the stock. That would be to the benefit of the ARK Fintech Innovation ETF (NYSEARCA: ARKF).
“We believe Cash App may be en route to becoming the ultimate neo-bank and the money center bank of the future. This could make buying SQ analogous to buying J.P. Morgan in 1871,” said Mizhuo analysts in a note out last Friday.
Indeed, that’s a lofty call, but if it comes even close to being accurate, ARKF investors will be cheering. The actively-managed fintech exchange traded fund allocates over 10% of its weight to Square stock, the largest weight to the name among all ETFs.
The Next Big Bank?
J.P. Morgan has roughly 150 years worth of returns on its side, so comparing Square to the largest U.S. bank today isn’t an apples-to-apples comparison.
“In 1871, J.P. Morgan co-founded Drexel, Morgan & Co., a predecessor firm of the largest U.S. bank today. JPMorgan shares have returned 9.9% annually the last 20 years, outpacing the S&P 500, according to FactSet. Since the early 1970s, the shares have returned 14,000%,” reports Jesse Pound for CNBC.
However, if Cash App does become the bank of the future, Square and ARKF investors are going to be happy. The popular app is making headway. Digital wallets face lower customer acquisition costs than brick-and-mortar banks and higher rates of customer satisfaction – points some analysts argue aren’t adequately reflected in related equities.
Today, Cash App offers traditional banking services and allows users to buy and sell equities and Bitcoin. Yet the products outside of its current orbit are where the real potential lies.
Jack Dorsey’s company can “increase its average revenue per user (ARPU) three to five times, to $150-$200 from $40-$50, by adding products ranging from tax services to home equity lending. In doing so, Cash App and Square can dramatically expand their user base, as they’ve tapped into less than 10% of their potential user base so far,” reports Lydia You for Barron’s, citing the Mizhuo analysts.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.