Hey Global Investor! Here’s what you need to know before the US markets open.
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S&P 500 (Monday’s Close) 4,387.16 -8.10 (0.18%)
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💳 Square: Squarely In The Driver’s Seat?
Listen to this on Winvesta Podcast
Digital Payments Services company Square Inc. (SQ) is purchasing Buy Now, Pay Later (BNPL) pioneer Afterpay Ltd. in a $29B all-stock deal. That’s a 30% premium over the Australian company’s closing price on Friday of A$96.66. This deal puts Square firmly at the center of the fast-growing global digital payments space. (Tweet This)
Multi-Faceted Square!
BNPL firms lend instant funds to shoppers, which they later repay without any interest. Millennials lapped up the concept, who chose to pay in installments for everyday items during the pandemic.
BNPL pioneer Afterpay was founded in Melbourne in 2014 and has since started operations in the US, the UK, Canada, and New Zealand. Afterpay lets customers pay in four interest-free installments. These borrowers have to pay a fee if they miss an automated payment.
Square was launched in 2009 by Twitter (TWTR) CEO Jack Dorsey with the idea of helping sellers start, run, and grow their businesses. Square’s mobile payments service “Cash” app, launched in October 2013, became its most profitable venture. Today, the Cash app contributes to more than 70% of Square’s quarterly revenue and 50% of its gross profit.
In March this year, the company launched Square Financial Services as a step in the direction of digital banking. Last month, Square launched Square Banking, a suite of financial products designed to help small business owners manage their cash flow.
Around the same time, Square acquired for an undisclosed sum, Crew – a frontline employee platform to consolidate and streamline day-to-day operations of hourly workforces. Before this deal, the company had also paid $50M last November to acquire the tax unit of Credit Karma and integrated the services into Cash.
High Premium? No Problem.
Afterpay’s shareholders will receive 375 shares of Square for every 1K shares they hold. As it did with Credit Karma, Square will merge Afterpay’s operations into Cash. Afterpay’s 16M customers will be able to manage installment payments directly through Cash.
Afterpay’s founders Anthony Eisen and Nick Molnar will see a big payday, earning $1.8B each as part of the deal. It also means a 6X return to China’s Tencent Holdings, which had invested $221M in Afterpay just about a year back for a 5% stake.
Needless to say, shareholders love the deal and the possibilities it bodes. After gaining 18% yesterday, shares of Afterpay added another 12% in today’s trading session (in Australia). Square, which was down 4% in pre-market trading, erased those losses and ended the day 10.2% up. In the last 12 months, Square’s stock has risen nearly 80%.
A rising tide lifts all the boats. And so was the case with Afterpay’s direct competitor Affirm (AFRM). Affirm shares ended the day 15% higher Tuesday. So what’s next for Square? All the big guys are gunning for a piece of the BNPL pie – JPMorgan, Citi, PayPal, Mastercard, among others. Apple, too is preparing to launch installment lending in partnership with Goldman Sachs.
Square may have started with the idea of helping business owners. But with its slew of acquisitions and rapid growth, the company is adding many more facets to become a multi-sided polygon! Shareholders, meanwhile, are cheering every newly-added facet!
Market Reaction
SQ ended at $272.38, up 10.16%.
Company Snapshot 📈
SQ $272.38 +25.12 (10.16%)
Analyst Ratings (44 Analysts) BUY 57% HOLD 34% SELL 9%
Newsworthy 📰
Unanimous: Amazon warehouse workers overwhelmingly rejected a union. Now they may vote again (AMZN +0.12%)
Stepping Up: Foot Locker to buy two shoe store chains for $1.1B (FL -2.10%)
Concerns: McDonald’s makes masks mandatory for all customers, staff (MCD -1.08%)
Later Today 🕒
- Eli Lilly Co. Earnings (LLY)
- Amgen Inc. Earnings (AMGN)
- Fiat Chrysler Automobiles Earnings (FCA)
- Marriot Inc. Earnings (MAR)
- Prudential Financial Inc. Earnings (PRU)
- Lyft Earnings (LYFT)
Fun Fact of The Day 🌞
All employees of Ben & Jerry’s get to take home three free pints of ice cream every single day
