Shares of hypergrowth financial technology company Square (NYSE:SQ) have been on a multi-week downtrend amid a broader tech sector meltdown that has been sparked by fears of inflation and rising interest rates. Amid it all, SQ stock has dropped more than 20% over the past month.
Yet, over this past weekend, Square just did something that reminded the world why this is still one of the best companies to invest in for the long-term: Square bought streaming music platform Tidal.
That might not seem like a big deal. But it is. Through its acquisition of Tidal, Square opens up the door to developing ubiquitous fintech tools for the music industry — which is a $100-plus billion industry globally. In other words, Square just expanded its addressable market by another $100 billion.
More noteworthy, the Tidal acquisition underscores the innovation prowess at Square. The company has, time and time again over the past decade, pioneered breakthrough, innovative technology solutions to materially expand its addressable market and meaningfully extend its growth runway. The results of this innovation are the fact that SQ is up almost 2,000% over the past decade.
Square acquiring Tidal emphasizes that this innovation prowess remains as vigorous as ever — which, of course, sets the stage for Square stock to continue to outperform in the coming years.
Big picture: This is still one of the most innovative and exciting companies in the market. Rising rates don’t change that. So buy the dip in Square’s stock.
SQ Stock: A History of Innovation
I’ve been bullish on Square for a long, long time — and my bullishness hasn’t wavered over that time because Square has continued to impress me with its relentless innovations.
Square started out in 2009 by selling flexible and affordable payment card readers to merchants so that they could accept non-cash payments. It was a pure-play on the cashless megatrend.
But Jack Dorsey and company weren’t satisfied by simply being a part of the cashless megatrend. They wanted to dominate the cashless megatrend. So, throughout the 2010s, Square innovated, and innovated and innovated. Including all of did the following:
- Built out a software services ecosystem that provided payroll assistance and management tools to merchants and retailers.
- Expanded into the e-commerce channel, and developed capabilities so that its customers could use Square to facilitate digital sales.
- Developed bank-like services, including Square Capital, which provided loans to customers.
- Created a consumer-facing cashless app, Square Cash, which allowed consumers to digitally deposit, store and transfer money.
- Fleshed out Square Cash to allow consumers to buy-and-sell stocks and even bitcoin through the app, while also attaching usable, physical debit cards to the account.
Now, here we are in 2021, and Square is so much more than just a physical payments processor. Square has created an end-to-end cashless ecosystem for both buyers and sellers.
And guess what?
Because the company kept innovating, it never stopped growing. Square’s revenue growth rate back in 2014? About 70%. Square’s projected revenue growth rate next year? About 50%.
Get the point? Six years later … on a revenue base about 10X bigger … Square’s revenue growth rate is almost the same.
That’s impressive. That’s the power of relentless innovation. And it’s why SQ has been such an enormous winner on Wall Street for so long.
Tidal Acquisition Proves that Innovation Lives On
Square stock has been very weak over the past month. I’d be concerned about this drop if it coincided with a slowdown in the pace of innovation at Square. But it hasn’t. At all. And this dip in SQ stock is a buying opportunity.
The proof? Square’s acquisition of Tidal.
Tidal was founded in late 2014 by rapper and media mogul Jay-Z. The purpose of the platform was to be a music streaming platform that put artists first. In essence, it’s a more expensive music streaming platform that includes some cool exclusive content and personally curated playlists from Coldplay, Rihanna, Daft Punk, and others. The big idea is to give artists a platform to more deeply monetize their work.
In the six years since its launch, Tidal has struggled. Most peg its share of the music streaming market at less than 5%, and total streaming users at a few million, with the biggest obstacle being Tidal’s premium price points (consumers don’t see the value in “paying up” for a few exclusive tracks).
But what Tidal lacks in mainstream following, it makes up for in artist approval. Musicians and bands love the platform because it is doing its best to help them maximize the monetary value of their work.
Square knows this. So Square bought Tidal, understanding that the company can now leverage Tidal’s great standing among musicians to cross-sell its industry-leading fintech tools to even further financially empower musicians.
After all, Square’s fintech tools were initially created to help entrepreneurs start their business. Those tools — like payment processing, payroll management, business loans, online checkout links, loyalty programs, and more — are now ubiquitously used across the small business world.
Musicians are entrepreneurs in art. They need the same financial help and empowerment as SMB owners. Square has the tools to provide that help, and now with Tidal, they have the access point to seamlessly tap that audience. To that extend, I see Square’s acquisition of Tidal as the first step in a multi-year growth narrative wherein Square turns into the fintech backbone of the $100-plus billion music industry.
That’s a big deal. It’s ultimately yet another reason why Square will remain in hypergrowth mode for many, many years to come.
Bottom Line on SQ Stock
The whole “tech sector meltdown because of rising interest rates” thing? It’ll pass. Like all other ephemeral panics before it.
But Square’s innovation? That has staying power. And meaningfully positive long-term impacts on Square’s growth trajectory over the next 5 to 10 years.
So, if you’re a long-term investor, SQ stock should be on your buy radar today.
But it shouldn’t be at the top of your buy radar.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon (NASDAQ:AMZN). Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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