Chit Chat Stocks - Matt Cochrane | Square (SQ)

Episode Date: December 25, 2020

On the 25th day of Christmas Matt Cochrane gives to you, Square the payment processing software and hardware. Square has been one of the most popular point of sale (POS) companies for small businesses. Matt Cochrane explains how Square does more than just the simple POS system. Visit our website: https://www.chitchatmoney.com/ Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to 25 Stocks of Christmas presented by Chit Chat Money. Today, we have an interview with Matt Cochran and we are talking Square, which used to be our largest holding. We both love the company and Matt's obviously an expert on it, or at least in our opinion, an expert. And I might say, I think he might be our most recurring guest. I think he's maybe been on the show more than anyone else. That's our number one KPI is most recurring guest, right? That's the key we can call it the pbf podcast best friend sure there we go but before we get to that we have a sales pitch so you want to give this sales pitch sure so like matt seven investing has seven advisors matt is one of the lead advisors at seven investing so each month he is someone

that is going to do one stock recommendation for someone who something you can hold for the long term uh they're long-term oriented they're very personable we go over this every time but you should know that you can get $10 off your first month by using the code CCM at checkout. Very easy. That means it's only seven bucks to try out the service. It's really easy to try it. You don't have to log into a long-term deal. Although I think they do have discounts for the annual subscription. So if you really like the team, which I think you should, they have those deals as well. But you can get an example in this whole episode of about 30 or 40 minutes of what Matt and the other advisors, how they go about their work, how in-depth they are, the expertise they have in

all the companies they pick. Did I miss anything before we should get started? $7 and you use code CCM. I mean, seven bucks. What would you have that fancy Starbucks cup of coffee or would you have the best investment advice of your entire life? Yeah. I don't know. You pick, but it's code CCM if you want to pick the investing advice. So yeah, let's get to the interview. Here we go. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investment. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are not financial advisors. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice

or a recommendation. Now, please enjoy this episode. Today, we're welcomed by Matt Cochran. Matt is a lead advisor at 7investing. Now, gosh, I want to say, what, four or five-time recurring guest for- I think it's the fifth time. I think it's the fifth time, guys. Yeah, it's pretty cool. There we go. Yeah, we've had a lot of discussions. This one's going to be focused around Square. And I know this might have been a while ago, but when's the first time you came across Square? How did it get on your radar? Wow. So, I mean, I was familiar with Square. Like it had been a fairly recent IPO, but it hadn't been doing like too well yet.

And I was starting to write at The Motley Fool. And when I was applying to write with them, they said, what areas do you specialize in? And I said, oh, I do payments. I know a lot about like, so MasterCard, Visa, Discover, PayPal. And I threw out those names. They said, oh, so like Square. And I didn't know too much about Square, but I was trying to get the job. So I said, yeah, like square. And so I had to start covering square. And I think if you if you looked like my first article about them was pretty was fairly bearish because it was like I was like, oh, the valuation is too expensive.

And I didn't really get what it was doing. But then after that, like I quickly like started liking the story a lot more, bought some shares. It was about twenty dollars then. And it's done very well since. And at the time they were mostly just the plug it into your phone and swipe your card thing. Right. Like their original point of sales, I guess. Yeah. So like even back then, so like, we'll just, we can just go into it, but like, yeah, that's how they started. And but they were already starting to build out their complimentary services to that. So like, that's what I was like, Oh, I see what they're doing. And that's what I like to do.

Okay. And then what does Square do? How have they evolved over time? I know they started with the seller and now they have a cash app ecosystems. Do you want to maybe just hit both of those? Sure. Yeah. So, and that's important because it's really like a, when it comes to Square, you have to understand both sides of it and then like how they both might come together. So it's, Square is developing two business ecosystems, both which started from kind of from simple beginnings, which were like, they were like innovative, but like pretty simple. And then they've grown into more robust platforms over time through the consistent addition of new features and services. And one of these platforms is for merchants or small businesses, and the other is for consumers.

So, for sellers, Square offers point-of-sale solutions for physical retail locations and online stores, but mostly physical retail. that range from like and it started like we said it was like this simple plug-in dongle that you could plug into your iphone and start accepting card payments right away and like it's it's hard to remember because now we see like these kinds of devices everywhere but when like they started this was pretty revolutionary if you were a small business um it was like you you if you like think farmers markets things like food trucks or or really small restaurants you know um you you accepted cash because like otherwise you would need to buy like expensive hardware you needed a robust landline to accept card payments so you accepted cash and if like uh if the customer was

walking by your farmer's market and wanted to buy your your produce or your food truck or whatever and you didn't accept card payments well or they only had a ten dollar bill they maybe they didn't spend as much as they could have or wanted to uh and so square said like you can buy this simple plug-in to your phone and you can get it at Best Buy or your local electronic store. You can order it online and you plug it into your existing iPhone and you can be up and running accepting card payments within minutes. And that was like a really neat innovation. But that was kind of all that the seller ecosystem did. But like since then, they've added like many pretty cool features. So, that range like they have like uh uh they have square capital which is like micro loans to spawn

businesses so uh ryan you and brett you open up a hamburger restaurant and uh and it does fairly well you want to open up a new restaurant but you need a loan and it's really hard when you're starting off to to get these loans in fact like it's a very overlooked part of the market and if you use square they use the data from your point of sale system to say no what these guys know what they're doing and we can afford to give them this loan and it's actually like pushed to your dashboard saying do you want a loan and press this button if you want a loan and then it goes right to your square account so square capital was like one of their first uh like early innovations that they were offering like business loans using the point of sale data like they had available they

started uh square payroll so they can pay uh your employees and stuff they log on through square and it's integrated through your point of sale system and you're you pay them uh through your point of sales they started verticals for specific uh markets and industries like square for restaurants which is obviously for restaurants they have square for retail which is uh like for retail stores and things like that and they've just continued to develop like add on these little products which none of them in the in of themselves is like truly revolutionary but they all come together to create a really nice ecosystem. And now, so hold that. And then on the consumer side, you have the cash app, which again, it kind of began as this really simple thing, a peer-to-peer

payment app, which was capable of letting users send and receive money from each other. But now that's added different financial services that the users can use. And it started by adding a debit card, which was, they call it the cash card. So now you can have your debit card and you can make purchases using like the money in your cash app uh it then it allowed uh last year and introduced you can buy and sell bitcoin on the cash app which was really like uh they don't really make profit from this and we'll talk about that later i'm sure but like it it really was a great customer acquisition tool because buying bitcoin is not like easy as it is buying other types of assets and so this attracted a lot of users who were interested in bitcoin uh and it was like another

feature you could use on the cash app and then it's you said you can buy and sell stocks now on the cash app and now you can have uh your your paychecks direct deposited into your cash app and so again just like on the seller side on the consumer side with cash app they kind of built up this really neat uh personal finance ecosystem for cash app users and and that's kind of like what square does okay and then i guess part of it do these two ecosystems overlap i know there's been some talk of it but is that part of the what management wants to do eventually maybe over the next few years yes and so i think this is where square could be special and uh i don't think the bull thesis necessarily uh like is is riding on this fact or like this has to happen but i

believe like it could be like something that's really special so like we talked about square payroll and now if your employee has the cash app they can get their money right away instantly instead of like the the normal two days it takes like it normally takes two days for an employer to pay an employee so when you if you get paid on a friday the employer has to put the money in on wednesday to get paid for you to get paid friday uh and if if the employee uses cash app they can get that money instantly now uh if they just if your employer doesn't use square payroll but you have the cash app you can get it like within um you can get it within one business day so it's still a little quicker and now they introduced uh like this last quarter they

introduced uh advanced pay i think it's called pay on demand so like if you if the employer uses payroll they know like what what uh what employees have worked what hours and what's coming to them So they don't mind fronting an employee with Cash App up to $200 in advance pay for that pay series. So like if you get paid every two weeks, but you have a, you know, if you're an 18 year old and you work at a restaurant and you get paid every two weeks, let's say, but you have a hot date this weekend and you don't get paid till next weekend, you can get $200 like on demand because they know using the data they have in the payroll system, they know

that you've already worked the hours and you're going to have that money coming to you. So they don't mind making that like one week loan to you to give you the $200. And there's different ways like that. Like if you think like of the legacy banks, and I think we even talked a little about this before when we were talking to the science of hitting on the podcast. But I was saying, like, I was trying to make the point, like you've had legacy banks, like just take JP Morgan Chase, which is a very large bank. And they're actually one of the more innovative legacy banks out there.

And they've had point of sale systems for forever. and they've had consumer checking accounts for forever and never once did they connect the dots and say look if you are if you if your employer uses chase's uh our point of sales solutions uh we'll we'll let you pay your employees with chase checking accounts like instantly or give them like advanced money drawn from their paycheck for the coming week uh like they never did that and so square just they always seem to be ahead of the curve making these kinds of innovations and if you notice like if that circle, like right now, that's a small circle of the employer has to use square point of sale.

They have to have square payroll and the employee has to have cash app. But as that grows, you, you, you notice the money never leaves square. It's always within the square ecosystem from the time the employer gets paid and then they pay it to the employee and then the employee spend it. It's in cash app. So then the employee spends it from cash app. It's always within the square ecosystem. Okay. And do you have a question, Ryan? I was going to say, what would you think, just broadly, of the business independent of the Cash App ecosystem?

Like, if this was only the seller ecosystem now, would you still be optimistic about it? I would be, yes. So, when I started liking Square, when I first invested in Square, I didn't think Cash App was anything. Now, it was obviously at a much less market cap then, too. But, like, it really was all about the seller side back then, to me. I thought cash out was like a, a side distraction. I didn't even see that big picture for a long time. And I would also say I'd be a lot more worried about COVID than I am now

because like COVID was obviously like a big hit to small businesses. And like, I kind of panicked for, for a little bit when COVID hit, I'm like, Oh wow, square, square is going to take it on the chin when this happens. And the seller side, it actually did better than I thought it would. I don't know how much of that is due to the stimulus or not. uh but i would say like uh like but cash app just exploded i mean it was just like the perfect storm for for things like cash app and paypal and and other digital payments uh you know wallets and

things like that so it the cash app really bailed it out during covid that being said like long term yes i i really like the seller the seller ecosystem they got going on okay to touch on the covid thing uh it did better than i thought i thought it would do as well and i think part of that was the SMBs started to lean on Square and Square started to roll out those features fast of like online order, what was it? Curbside pickup, that kind of thing. I don't know if they were using

another point of sales provider. I don't know if they would have been able to get that. No, 100%. Oh, look, it would have been a hit no matter what, right? But Square, like I think even how they responded shows you like how innovative and quick they can be. So, like, late March, they were supposed to have an investor day. And, like, they don't have investor days every year.

So, it's like every two, I think maybe every three years. So, I was really looking forward to this to get their long-term vision. COVID hit, and they scrapped their whole investor day. They say, you know, here's the slide presentation we were going to go through, but we're not talking about that. And instead, they talked about everything they were doing for COVID. And so late March, just, I mean, just maybe a month, within a month, like when COVID really hit the US, and they launched curbside pickup and contactless deliveries for its restaurant clients. And it was all managed to its existing point of sale system. It created an online directory for sellers where consumers can purchase gift cards. They offered customizable email marketing campaigns that sellers could use to let their existing customers know like, hey, we're still open for delivery or you can come in and like pick it up to go or we're having contactless pickup and things like that. And it didn't matter.

The great thing about Square, it didn't matter if the businesses were already collecting these emails because Square collects emails. And they said, these are all your customers' emails that have shopped at your restaurant in the last year. What marketing campaign do you want to start? It refunded software fees for the immediate future. It offered deferments on minimum payments from loans, and it tightened its eligibility requirements to obtain square capital. And it did all that in late March. So it was like, it's just always so far ahead of the game, allowing these small restaurants, because most of these are one-offs or very small chains, and allows them to compete with the big restaurants or the big guys in retail who can afford to do all this stuff. in-house you know one mom and pop restaurants they can't afford to do that so square just like enables these people it gives them the same tools that everyone else has it kind of levels the playing field which was really essential in a time like covid okay and i guess that tails into management because they're the ones making this decision these decisions in the spring how

important is management i know there's dorsey and i know there's emrita huja as the cfo how important are they for the investment thesis here? Well, you know, Jack Dorsey is just a down-to-earth, salt-of-the-earth kind of guy, regular guy. He might send his beard shavings to like a female rapper so she can make an amulet for him to protect him. But he's just a normal guy. And like in all seriousness, I really like Dorsey. The big knock would be he's also the CEO of Twitter right now uh and i don't actually like him as the ceo of twitter that being said like what i would say is like his financial incentives if you look at his inside ownership and where most of his uh net worth is it's most of it is with square the overwhelming majority of it is with square not

twitter and so i i think it's just human nature where you're financially incentivized it's where you're going to give more of your effort and thought to and he can say like i spend you know half my workday at Square. I spent half my workday at Twitter, but like, I just think he's done a great job at Twitter. And I think he's done a subpar job at, I'm sorry, he's done a great job at Square and a subpar job at Twitter. But I think he's done very well at Square. I wish he wasn't the CEO of Twitter too, but he is, but I, so far I have not seen any ill effects of that on Square. Do you think if he got – obviously, there's the activist investors over at Twitter with Elliott Management. Do you think if he was pushed out, that would be better for Square? Because I'm just thinking about like maybe the psychological secondhand effects towards Dorsey of like, oh, who's going to run Twitter and being worried about that? Maybe it hinders performance over at Square. I don't know.

I don't have an answer for that. Like, I wish he would see it himself and just step down, right? Like, and there's no, in my, in this world, there's no psychological effects from that. I don't know if there would be or not. You know, he's eccentric. And I think a lot of that, like, and so when he does weird things, like when he talks about moving to Africa,

which I don't think was as eccentric as the headlines made it sound. Um, but when, when people see that, I think they kind of like project more on him, like more, I think that takes away from like the good things he's done. And I think he's kind of underrated actually. I think he's a very smart person. I think he's been great at Square, uh, the entire time. I just wish he, he wasn't also the CEO of Twitter. All right.

And what, okay. We talked about this a bit, uh, but why do you like Square as an investment going forward? Is it mainly sellers? is it mainly the cash app or is it just the growth of both of these yeah so i mean i would say like it's both okay like i can't i can't take one away from the other i i would say like so i believe it's uh the the one thing i always want in any company i invest in is an economic moat like and i have to like really believe like okay this is its competitive advantage and i think its competitive advantage is like one, like once a business is on a seller ecosystem, its platform, whatever you

want to call it, I believe it's very hard to get off of that. You're a small business and you do point of sale and it works. Okay, that's great. No matter what vendor you get, like if it works, you're probably not, you don't want to change it. But if you're a square, okay, so you start with the point of sale and let's say you're a restaurant. So, you start with a square for restaurants. So, now you're in their their specific vertical for your field and then you want you need a loan and it's right there on your point of sale dashboard you don't have to go to the bank you don't have to like write a proposal to the bank it's right there you just push a button and the money's in your account and here's your business card and you can use the money that you got paid last night

on your food truck and you can use the business card the next day to go grocery shopping for that night's like supplies that you need uh you know for for your food truck business uh i you can make your online store with square uh which they've grown that's grown tremendously you can do your payroll with square you can do uh you can do all these things to square once you're doing all that all those things to square you are not you're just not leaving that platform you're not um so i believe like that's its economic mode it just has comes with very high uh high switching cost now it's cash app for consumers the more they add i believe again like the more like one it becomes habitual to a point and two like uh i just believe that gets harder to leave like as you i feel like

that the cash app can grow with the consumer now so the consumer first gets on it they just want the cash app to to like send to send and receive money from friends and then like they get their debit card with it and then like they can get direct deposit with it and then they they might want to buy some Bitcoin or some stocks. And I believe over time, these things will also mature and innovate and it will just get stickier and stickier for that person. I think that I want to say the first or one of the first two times we talked, we were talking about like Cash App could introduce buying and selling of stocks and that would be a way it could grow. And now we're talking about it in the past tense, like it already happened. Yeah. Yeah, I agree. I don't

think any one part of the business has an economic moat but when you blend them together with like the seller ecosystem for example the point of sales solution in and of itself being able to plug into your phone that little gimmick or whatever it was the dongle and then the or the actual uh yeah the terminal that alone doesn't have a moat but when you add the products behind it it gets really hard to leave yeah it gets sticky it gets sticky like i just don't see businesses leaving it and especially and we just talked about covid and so and when they innovate and i believe they're the fastest innovators in the point of sale system so it's a crowded crowded field right like selling point of sales and and getting that business from a uh uh from

merchants that's a crowded space but it's it gets very sticky and i square just innovates faster than all of them and when we talked about covid i think that's where it just becomes so evident and places are going to see this at places you know they know and they see like what square did like right away when covid started like introduced all these features um you know and that feeds the moat i i do so i do believe the high the high switching cost like i believe that's a real moat like i i just believe it's very hard for businesses to leave that it gets stickier with every product they add and as they innovate and add new things like paying your employees instantly who have cash app uh things like that every little thing they add none of those little things are super

valuable in and of themselves but they all feed that moat okay and is the speaking on the cash app side how important is the cash card because i know they've done really innovative things with the boost and they do a lot of different advertising campaigns i think the marketing around the cash app we've discussed it here is one of the best i mean they advertise on twitch tiktok and brett's saying this because he uses the cash card for everything i yeah i do that's very anecdotal here but i do love their discount features and that's kind of like their their marketing right like all for these great discounts and they know where you go and they already have like the merchant side and they can use that like they they can say look uh when they're selling to

a merchant now like who else can say this except for paypal they're they're trying to get uh get in with a merchant they can say well look we also have like 30 million plus uh cash app users and we'll introduce some rewards for your place of business for cash app users in your area and so when they go using their their their cash card here they'll get whatever five percent back or whatever it is and uh it will drive we will drive business we'll drive customers to your business what what other what other point of sale solution can say that there's none there's none Yeah, I mean, that's one of the most important things, I think, for the bold thesis. You had any other questions?

I think we should hit the break here real quick. But on the second half, we're going to try to poke some holes in your thesis. Let's go. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts. Oh, like this one. So you don't have to worry about malware. Or when your kid downloads a song from a shady link.

and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply welcome back in next up we have devil's advocate most of our listeners know how this goes we've got some uh counterpoints we're going to try to poke holes in matt's thesis and his job is to refute them my first one and this is something i've like been contemplating a lot in my head is this bitcoin revenue uh it's basically an accounting anomaly but it the revenue itself is very low margin i think it's almost zero percent or they have like what was it 17 million it's just yeah

it's based off of how much they had to buy and sell and their customers buy and sell things Right. And I think this might be leading to, I mean, we kind of live in a top line growth world right now, and it might be leading to an overvaluation because so many people are paying attention to that revenue when it's obviously you should be looking at gross profit there instead. And I know there's the argument to be made about, well, it's a customer acquisition tool. But if that leads to overvaluation, then maybe it created a double-edged sword in that way. Yeah. So I'm not even going to argue like Square's like a bargain. There's no way I could do that with a straight face. I would say it's definitely expensive here.

And I would even say it's deceptively expensive. So I can do you one better. I'll throw you one on top of that. So one, the Bitcoin revenue. Absolutely. Like I don't even I don't even want to count it. Like I'm glad it's profitable by a little bit, but honestly, don't just throw it out throughout the Bitcoin revenue. That's just like to me, it's just like get people on Cash App. That's great. And using the other products. Fantastic. I'll even do you one better. I'll throw another one on there. And that's like it's it's over.

They used to report for years adjusted revenue. um and this is more when uh like on their seller side uh because they take in this the take rate their take rate uh as revenue but they immediately pay out like uh 0.1 percent so if if i go and i make a hundred dollar order at your hamburger joint right uh like and square might take 2.5 which is it's pretty standard when you include all these things so let's say they take two dollars and 50 cents for that well they immediately will uh if i use my master card they're immediately going to take 15 cents and that goes to master charter and uh they're then like about about a dollar 50 will go to the bank that issued that master card for me so we talked about jp morgan

chase before so we'll just stick with that my master card is from jp morgan chase a dollar 50 immediately goes to jp morgan chase and like a certain you know for the interchange fee and some cents goes to MasterCard, etc. And they're, you know, they're finally left with their pot. Like, so the adjusted revenue used to cancel out all that other stuff. And they said, adjusted revenue is really like more are real revenue guys, like just focus on adjusted revenue. And the SEC came in with all their wisdom and said, don't report that anymore. That's confusing people just report your real revenue, which I think is much more like just not true to the revenue they're actually taking in right uh so they they look like if you just if you just looked on their price to sales

it doesn't look like oh in this environment it doesn't look that expensive compared to all the other like high-flying sass names you're like i think it's like 14 sales maybe like 14 times price to sales but immediately i would say you subtract out the bitcoin revenue you subtract out the the transaction cost and then you're left with a more clear picture of what like i would saw say is quote unquote real revenue uh so they're deceptively they're they they're more expensive than they look at first glance uh i i don't know if that's leading them to be more overvalued or not i would say if like if you can sell bitcoin on your platform and make any profit from that while you're using it as your customer acquisition tool more power to you i think that's

fantastic um but they're expensive uh like if somebody was going to buy them now i would say just what i always say is i think it's a great company i think it has a long runway ahead of it but i would say dollar cost average in it you know you know whatever you wanted to put in it eventually i i mean i just like putting i like i like putting in yearly allotments into what i call like great companies and so we'll just say that a thousand dollars so i would start now with a thousand dollars and if it doesn't go down 20 or more in the next six to eight months well then no matter what i'm gonna put in another thousand dollars even if it goes up more and i think like well now it's really overvalued but i just keep dollar cost averaging in and that's what i would

say to someone else like uh who who wanted to buy it now dollar dollar cost average in and just buy over time and you'll get at different valuations and like to me that's how you buy great companies that you think might be overvalued like to me the answer isn't to not buy great companies just because just because they're they're somewhat overvalued there's some valuations i won't go to but like for this i i think you're um i think you can start dollar cost averaging in it okay is there a metric um what would you say is sort of the most valuable metric to pay attention to because obviously that sales multiple can be a little misleading would it just be like uh price to gross profit probably yeah I think that's fine I think that's fine like I don't I would say this

like uh if you're going to use one metric that that's fine I would say the more uh the more older I get or the more I learn as an investor I like I just follow different metrics I don't think there's one metric you can say like this is the best this is the best one to follow I used to think adjusted revenue was really good and then that went away but you could still subtract out the transaction cost but then they added bitcoin like so like you can it depends what you wanted to do you they they report adjusted ebitda which might not be the greatest one they also report a gross profit you can follow that if you wanted like their adjusted revenue i would subtract out bitcoin revenue and uh and their transaction costs to get to come with with your own adjusted revenue

but they report gross profit they report adjusted ebitda if you just want to follow those two like i think that's that's fine you just want to see that getting better okay yeah definitely the all right mine is going to be around the point of sale solution so we're seeing a lot of competition there i mean there's clover lightspeed a few others um is that space getting commoditized at all i i know we mentioned that the square does have that lock in with all the other products but we have seen businesses like Clover kind of come out with competing things with the capital and the, you know, the payroll. Does that worry you at all? You should always be worried as an investor.

So you should absolutely pay attention to that. And some of those are, are like some of those are interesting companies in their own right. Right. But I would say Square is, it's unique for a few reasons. Like one, I just, right now they're innovating faster than anyone else. So I talked about all those features they rolled out in like that first month of covid no one else is innovating at that speed there are plenty of other competitors though and if it was just a point of sale system where it takes card payments and did a few other basic functions i would say yes it's absolutely a commoditized product i believe though like uh

we talked about cash app like when they're trying to win new business and saying we have like you know and it's still a relatively small number of cash app users but you know 30 million plus but they those cash app users they're using in about an average i think of 15 times a month so for them to say like we have these highly engaged 30 million cash app users and x amount are in your area around your restaurant and we can drive you know every every third month we can drive sales to your restaurant or when you open because you want customers to know about you like and that's just like that's just things they can add that no one else can can compete with uh except paypal except paypal and paypal is not in the physical point of sale nearly as much as

square so like like they they have that like they have pretty unique offerings that that's just very hard to match and um and so like i i think like that that differentiates them from the competition like the speed of innovation and uh like their cash app ecosystem users that they can that they can push to your business okay and have they done that thing where they pushed uh users to their businesses yet or is that something they uh maybe announced that they're gonna roll out in the next few years so paypal talks about it more than square okay so i don't know but i would say those two uh that there are to me they're the fastest innovators in the space still and so uh a lot of it's paypal copying square like uh um but i think sometimes it'll be square copying paypal

and i i don't why why wouldn't you uh you know like where i i think when they grow out the ecosystems more it'll just almost be automatic any square seller you get x amount back on your your debit card and just on your uh cash app on your cash card and uh and so automatically it'll be like oh like where's the square sellers you know um i i don't i don't think that's far away but paypal talks about it way more than square okay what would uh what would change your thesis what would make you sell square so what what i look for like we talked about their their pace of innovation and every little new innovation how it's not important just adds to its like adds to a stickiness adds to his cost of switching uh for its customers and every quarter it's it's

again none of them are huge none of them by themselves are revolutionary but every quarter it's one or two three bullet points that like look what we did this quarter look what we did this quarter and again that just feeds their economic moat of high switching costs and that's what i look for if that slows down and i'm not saying like one quarter i don't really see what they did this quarter uh but if it was like several quarters where i was really like i don't it doesn't seem like they're innovating anymore that's when i would begin to get worried uh like they're a high cost a high switching cost is a great moat but their valuation is definitely built for growth built into that and high switching cost alone doesn't lead to growth it just leads to

less churn and so they need to innovate at a high speed to win new customers and to add to the high switching costs so that when they get them it's much harder for that customer to leave so you see that pace of innovation slow down which i know is kind of a soft answer i'm not giving like a hard metric that when this you know when the the forward price to sales ratio goes below this or you know it's nothing it's nothing like that but i would say like when that pace of innovation slows down um and you see other competitors starting to introduce options before they do so now square's copying what lightspeed is doing or square's copying what clover is doing And when that starts happening regularly, I would be worried.

Okay. And is international a big driver for this? I guess, you know, they're trying to do the push for the seller ecosystem, but I know with the Cash App, they launched the free currency exchange between United Kingdom and the United States. Is that a big part of, you know, if the Cash App can go international to do those cross-border transfers really easily? I think it's growing. I think it's growing so uh they're in japan uh uk canada australia um and they're they're rolling it it's taking it takes longer for them to roll out all their features to those uh territories and like japan is like the slowest one but they're rolling out their features now to japan and there's like it'll almost be like their full their full seller ecosystem now will be available in

japan and those markets are growing and uh like i don't think it's not too much of a big piece of the pie right now i think it'll grow over time though like you saw with shopify like i mean i don't know if you know but like if you follow shopify like a couple years ago the international story you could see it was growing but it still wasn't that big of a piece of the overall pie and now that's growing for shopify i think it'll be the same for square okay would you change your mind about the company at all if dorsey went full-time at twitter instead of full-time square so like if if he left the company would it change your thesis uh you would not right away but you'd want to see uh how it responded to that like how how the company responded that would if he left

and then the next year their pace of innovation slowed down and it probably wouldn't even be the next year it would probably be like two years after that because they probably already have things in the pipeline right but if you start to see that pace of innovation slow down and it was like a year after he left like i would be like uh yeah that that would definitely worry me and i would be like probably more sensitive to that happening if uh if he left okay and last question before we wrap things up what is one change you would like to see square make i know you mentioned getting the full-time ceo but anything besides that maybe a capital allocation decision right Yeah, I was going to say, this is also our chance to make a second prediction of where they could go.

You're one for one on that. I would love to see them like really go into direct deposit. Like, I know they have it now. They have it now, so it's not even a change. But I want them, like, on the Cash App side to really lean into that so that when you're an 18-year-old and you download Cash App on your phone, like, what really just happened, even though the 18-year-old doesn't know it is, is that you just chose your bank. And, like, you just, you download Cash App on your phone, but what they don't know, but what Square knows, it's like, well, that's going to be their bank. And it's going to be, I want them to make it super, whether the employer has the Square point of sale or not. I want it to be super easy to direct deposit that guy's paycheck, you know, when he works

at wherever he works at and like super easy to go into his cash app and he will have all the financial features he needs right there as a super app in his phone. And I think the real key to that will be direct deposit. They're already there. So I'm not even saying like, it's not even like a real change, but I really want to see them lean into it because that's the way you really capture someone's like banking future when that's when somebody is direct depositing their paychecks into cash app and they feel like they're not missing out on anything like i i think you you can uh you can grow with the consumer

there the uh is it important that they get a banking license so you can get uh interest-bearing accounts or is that just something with the low interest rate environment it's not as important i don't get one so they have so there's different banking licenses right and so they got one but not like uh not for like the consumer side so there's different banking licenses i don't i don't know they partner with banks there's a lot of banks out there that just partner with fintechs and it's a way for these banks to get a lot of deposits and it's a way for these fintechs to avoid uh the credit liability that comes with like holding money and then directly loaning money to people um so there's pros and cons to that eventually i think they will probably have to

because they're growing so much but like i don't think that needs to be immediate and i wouldn't say even push it off until regulators tell you you can't push it off anymore okay all right well i think that's all the questions we have um yeah do you have any more nothing else no okay that's going to do it and where can uh people find you uh on twitter way too much so at matt underscore cochran seven uh and i'm on seven investing.com all right yeah and we want to do the uh i mean we usually do the pitch for seven let's do it the top for our promo code but you do you want to do a quick pitch to you know why people should uh come check out the website uh sure like so i think we have seven excellent uh lead advisors we make recommendations every month but i think that's

just the beginning of the value you get uh we write uh like pieces throughout the month where you get the the recording of the videos where we pitch our recommendation that month to the rest of the advisors and they can ask us whatever questions or concerns they have and sometimes it's pretty soft but sometimes we really go at each other and so uh you really get the full process uh we record all of our uh all of our returns transparently comparing it to the s&p 500 uh and so i think it's, I think it's, and for $17 a month or $170 for the year, I really do. I believe it's a good value. And you can get $10 off. So, it's only seven bucks for your first month if you use our code CCM. All right. That's going to do it. We want to remind our listeners that we are not

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