In this article, I analyze Cash App's viral growth and how Square will evolve and monetize the App's ecosystem, the same way that Square evolved its Seller ecosystem.
Cash App has 36 million monthly active users, which is up 140% since 2018, and it generated $529 million in the first quarter of 2021 (excluding Bitcoin).
Square recently acquired Tidal, a music streaming platform. I will highlight how Cash App can leverage Tidal to create a platform to better empowers musicians to participate in the economy.
According to my estimates, Cash App is worth $73.5 billion today, which is currently ~65% of Square's current market cap.
I'm bullish on Square and the ecosystem that it's creating within Cash App.
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Cash App from Square (NYSE:SQ) is due for a large expansion in its offerings, similar to how the Seller ecosystem evolved over the last 10 years. The average bank generates about $880 in revenue per active digital customer, while Cash App only generated $41 per active user to end 2020. In order for Square to monetize Cash App, it must continue to build its platform and expand its services by attracting new users and offering new products.
Square will achieve this by extending economic empowerment to individuals just as its Seller ecosystem extended its customer’s business capabilities. Square recently acquired Tidal, Jay-Z’s artist-backed music streaming service. This is an opportunity for Cash App to work for individuals, specifically musicians.
Given what Square has been able to do for sellers of all sizes and individuals through Cash App, we believe we can now work for artists to see the same success for them, and us. We’re going to start small and focus on the most critical needs of artists and growing their fan bases.
- Jack Dorsey, Square CEO
In this article, I will highlight the opportunity Square has to expand Cash App’s ecosystem to empower individuals to better participate in the economy, specifically illustrating how its recent Tidal acquisition could pay off.
This is how Cash App operates under Square according to Cash App's website,
Cash App is redefining the world’s relationship with money by making it more relatable, instantly available and universally accessible."
This mission will result in a huge increase in Cash App’s average revenue per user, making Square a buy for long-term investors today.
Since Square was founded by Jack Dorsey in 2009, the company’s core mission has remained the same: "To empower businesses, sellers, and individuals to participate in the economy." Square carries out this mission through its Sellers ecosystem and Cash App.
Sellers ecosystem: It enables businesses to use their computers or mobile devices as a payment or point-of-sale solution for business transactions. Square has taken the Sellers ecosystem a step further by utilizing its customers’ data so they can better engage their customers and now Square Capital offers loans for small businesses. This ecosystem is starting to mature and is scalable.
CashApp: Offers a platform for individuals to spend, send, or receive money as well as invest in stocks or bitcoin. Cash App includes Square’s Cash Card which operates like a debit card for one’s Cash App and offers “boosts,” which allow its cash card customers to save money at different restaurants or merchants.
Source: Square September 2020 Investor Presentation
As can be seen above, Square expanded its Sellers ecosystem by adding product offerings for its customers, while it's capitalizing on these opportunities by becoming an industrial bank. Now, when Square Capital provides a loan to a customer, the loan can be issued from Square’s bank. This is a win for Square because it provides the loan for its customers’ business to operate, so it’s making money off the loan as well as the sales its customers generate using Square’s point-of-sale.
Progression of Cash App
Cash App entered 2021 with 36 million monthly active users and over 100 million downloads
Cash App delivered a strong Q1 of 2021 generating $529 million, up 139% year-over-year (excluding bitcoin revenue)
Gross profits for Cash App were $420.5 million in Q1, equivalent to a 79.5% gross profit margin (excluding bitcoin)
Cash App is crushing it and a large part of its success is the culture that’s implemented by Square in order to grow Cash App’s monthly active users. Cash App has an extremely low average customer acquisition cost of less than $5. Cash App accomplished this by partnering with celebrities, specifically music artists, to offer promotions and cash giveaways using Twitter and other social media sites (Instagram and Tik-Tok specifically). By doing this, celebrities expose their fans and followers to Cash App, and in turn, this triggers a network effect. The artists get more attention and positive publicity, while so does Cash App. For example, when Kim Kardashian announced on Twitter she’d give away $500,000 through Cash App, it resulted in Cash App reaching a lot of Twitter accounts. Cash App reaches at least 50,000 unique Twitter users per Cash App post, similar to these below.
Cash App achieved viral growth cost effectively and is building its user base, but Cash App’s services are what leads to retaining and monetizing its user base. Some services we’ve seen thus far are investing in stocks and Bitcoin while Square has not lost sight of other opportunities as Cash App envisions further enabling its users.
Source: Square September 2020 Investors Presentation
Now that we understand Cash App’s business model and why it works, let us explore how Tidal fits in with Cash App’s mission. Ultimately, this will create a platform for musicians to operate as independent, small businesses.
Tidal + Cash App
On March 4, 2021, Square acquired Tidal for $297 million, only 4.2% of Square’s cash on its balance sheet. Tidal is unique because it strives to create a fair playing field for its artists and is backed by artist-owners. These artists will retain a certain level of ownership in Tidal moving forward.
These are some of Tidal’s artist-owners:
Coldplay's Chris Martin
Shawn "JAY-Z" Carter
With these high-profile names and Jay-Z at the helm, Tidal got a lot of buzz but didn’t survive in a crowded streaming market. With these artists on board, Square is building its army and could use these artists to promote Cash App to continue to achieve a network effect. However, Jack Dorsey is rather focused on ensuring that musicians can better participate in the economy.