Here’s how America’s best financial app could quickly take the world by storm


Ffinancial technology company (fintech) To block (NYSE:SQ) has several business segments, but arguably none more important than its Cash App ecosystem. In 2019, Cash App only accounted for 25% of the company’s total gross profit. In 2021, Cash App’s gross profit was 350% larger and accounted for nearly half of Block’s total gross profit.

In short, Cash App is fueling an inordinate share of Block’s growth. And while growth has been white-hot, it could get even hotter as management turns to international markets. Here’s why.

Cash App is America’s Best Financial App

On July 13, third-party research firm Apptopia released a report on the most downloaded financial apps in the first half of 2022. PayPal Credits (NASDAQ: PYPL) made headlines, being the most downloaded financial app in the world with 49 million downloads, far ahead of fourth place Cash App, with 35 million downloads.

However, the overall comparison is not fair. PayPal is more mature and has already expanded internationally. In contrast, only 3% of Block’s revenue in 2021 came from international markets. And Cash App is only available internationally in the UK, while it is available in Spain as Verse. Therefore, with such little international expansion to date, it’s no surprise to see Cash App downloads lagging PayPal around the world.

Cash App offers services such as peer-to-peer transfers, stock brokerage, paycheck direct deposit, and more. And what it lacks internationally, it more than makes up for in the US market. Apptopia’s report showed that Cash App takes the top spot in the US, with twice as many downloads as PayPal so far this year and nearly three times as many as PayPal’s Venmo.

Block’s management shared some stats in its May investor presentation that should get investors excited about Cash App’s business. First, its cost of acquiring a new customer is only $10, a fraction of what traditional banks pay, likely through word-of-mouth marketing. This suggests that Cash App benefits from network effects (keep that in mind). In other words, the more people who use Cash App, the more likely others will join to connect with people they know.

With such low customer acquisition costs, Cash App is fueling Block’s gross profit growth, as mentioned. And it’s only getting better as the company has added more personal finance tools and services to the ecosystem. In the fourth quarter of 2016, the quarterly gross margin per monthly active customer was only $5. In the fourth quarter of 2021, it was $47.

The chart shows the five-year growth rate of Block’s overall gross profit, not just the Cash App segment. SQ Gross Profit Data (TTM) by YCharts

With metrics like these, I think you’ll agree that Cash App is a great company. And I believe it could quickly take the world by storm, just like the United States

Set your sights on the world

In March, more than 50% of Cash App activity in the UK was cross-border to the US. This reality has led Block’s management to realize that it can leverage network effects to grow Cash App internationally the same way it has grown domestically. And the key is Afterpay, Buy Now, Pay Later (BNPL).

In January, Block completed its acquisition of Afterpay for $29 billion – a move I criticized for its price. For perspective, PayPal has built an in-house BNPL product for a fraction of the price. Consider also that private competitor Klarna has seen its valuation plummet 85% in the past year, suggesting Block has bought the hype from BNPL. However, if there’s a silver lining, it’s Afterpay’s user base of over 20 million and large international presence.

Unlike Block’s Cash App product, Afterpay made its international debut in Australia. However, it was able to scale rapidly in North America and Europe as users demanded cross-border capabilities. It is the same dynamic management that is currently being played out with Cash App in the United Kingdom.

From Block’s management perspective, the acquisition of Afterpay was the final piece of Cash App’s international expansion puzzle. Now that it is complete, Afterpay will be integrated into the Cash App ecosystem and accelerate its entry into various global markets. The hope is that international consumers will adopt Cash App to network with Afterpay’s international user base and the US Cash App user base.

If Block can truly leverage network effects internationally, I expect Cash App to take the world by storm. And as users join the ecosystem, the company can monetize them with a healthy profit margin. Over the long term, rising earnings drive stock performance. Therefore, this international growth opportunity is one of the main reasons why I continue to hold my Block shares with a closed fist.

10 stocks we like better than Block, Inc.
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed what they think are the ten best stocks investors can buy right now…and Block, Inc. wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of June 2, 2022

Jon Quast holds positions at Block, Inc. and PayPal Holdings. The Motley Fool holds positions and recommends Block, Inc. and PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Comments are closed.