How Square's Tidal Deal Could Transform Cash App

Square (NYSE: SQ), the largest holding in the ARK Fintech Innovation ETF (NYSEARCA: ARKF), made waves last week with a new investment.

The fintech company said it’s paying $297 million for a majority stake in Tidal, a music streaming service.

“TIDAL attracted high-profile artists to take ownership positions in the platform and market to their fans paid subscription tiers for exclusive content and high-quality streaming,” notes ARK analyst Max Friedrich.

ARKF 6 Month Total Return

Square + Streaming

ARKF member firms are companies that are powered by innovations, working to disintermediate or bypass the current financial markets and challenge traditional institutions by offering new solutions that are better, cheaper, faster, and more secure.

For Square and ARKF, there could be more than meets the eye with the Tidal deal. In fact, the music streaming service could fit well with Cash App – Square’s digital wallet.

“Why did Square acquire TIDAL? In our view, the partnership is a more natural fit for Cash App than most observers might expect. Cash App’s partnerships with musicians have integrated it into urban culture, accelerating the digital wallet’s growth,” according to Friedrich. “Leveraging learnings from its partnership with Spotify, Cash App could enable TIDAL artists to sell merchandise powered by Square eCommerce, increasing both the engagement and reach of both platforms. Perhaps more important, Square and TIDAL together could disintermediate record labels by offering artists loans backed by the cash flows associated with their streaming revenue, much like Square underwrites business loans based on merchant cash flows. Ultimately, the partnership could reinvigorate TIDAL’s original mission, giving artists the opportunity to build relationships with fans by offering exclusive content.”

Boding well for the long-term ARKF thesis is that digital wallet users should be valued at the same rate as traditional bank customers. That’s currently not the case. It’s also cheaper for fintech platforms like Venmo and Cash App to acquire new customers.

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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.