We divide Cash App users into three groups: primary Cash App users who monetize at an $880 ARPU (average revenue per user), the same rate on average as bank customers; secondary Cash app users who monetize at half that rate, or $440; and unmonetized users who use only Cash App’s products that are free. The Company specializes in thematic investing and focuses on key areas of disruptive innovation, including genomics, industrial transformation, and the next generation of web development. [8] Before launching officially in Europe, however, Cash App probably will use Verse, a P2P payment startup Square acquired earlier this year to increase its understanding of European markets. You signed in with another tab or window. Wood bets that big companies, especially tech firms, will follow in the footsteps of payment giant Square and Michael Saylor’s MicroStrategy and purchase BTC as a hedge against the dollar. Catherine Wood, the founder of ARK Investment (Ark Invest), believes that many more big firms will be exploring Bitcoin in the coming days. Read ARK’s corresponding blog with further explanation of our assumptions and thoughts on Square here: https://ark-invest.com/analyst-research/square-valuation. Nothing contained herein constitutes investment, legal, tax or other advice and is not to be relied on in making an investment or other decision. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. In our view, Cash App offers users the most cost-effective and streamlined products and services in the financial services industry as it builds personal relationships that lead to efficient and effective cross-selling. Intentionally, we have not incorporated the potential for Square’s international business, an important call option. ARK is a global asset manager specializing in thematic investing in disruptive innovation. Furthermore, Square could use the Lightning Network, a second layer application on top of Bitcoin, to disintermediate third parties in transactions between and among Cash App users and Square sellers. Other Square seller services grow at a 19% compound annual rate, the same rate as transaction-based revenues, through 2025. Already, aiming to serve as their primary spending hub, Cash App has incentivized consumers to sign up for direct deposit with significant “Boost” discounts on goods and services as well as lower interest rates on loans. Ultimately, we believe Cash App could enable an e-commerce platform and benefit from many new revenue streams. ARK believes innovation will change the way the world works and lead to a more sustainable future. If Cash App can monetize 20% of its US user base at the level of traditional banks today, then with modest growth in its seller business, SQ could return 19% at an annual rate during the next five years, rising from $150 today to $375 per share in 2025. We believe that the network effects associated with Cash App’s peer-to-peer (P2P) payments network have given Square a significant competitive advantage relative to traditional banks and private bank startups. That said, Square still has large opportunities in its existing international markets: Canada, Japan, UK and Australia. T 212.426.7040. Learn more. Invest in ARK's Innovation ETFs – Exchange Traded Funds, designed to aim for attractive performance, uncorrelated to traditional investment strategies. Forecasts are inherently limited and cannot be relied upon. While it has lost international sellers, we believe Square has substantial runway in the US to offer a cost effective and convenient way not only to accept payments but also to help entrepreneurs manage their businesses, especially given its newly acquired Industrial Loan Company (ILC) bank charter. In our view, because customers have diversified their relationships among financial institutions, the $880 in bank ARPU discussed above is a fraction of the potential value creation in consumer financial services. Square does not monetize the remaining 60% of Cash App’s MAUs. Feel free to change variables to battle test our assumptions and share your thoughts with us. Cash App has evolved considerably since it emerged from a Square hackathon in 2013, as shown below. Feel free to change variables to battle test our assumptions and share your thoughts with us. We believe that Square’s (SQ) Cash App could become a leading global consumer financial services provider. You may not use the material for commercial purposes without first obtaining written permission. The fund seeks to invest a minimum of 65% of assets in domestic and foreign securities related to the theme of “disruptive innovation.” ARKK has produced a market return of … Professional money management is not suitable for all investors. Among them are the four described below. 2020, ARK Investment Management LLC. Square also could lend the bitcoin on its balance sheet, an opportunity that we will discuss in a forthcoming blog. The Adviser did not pay any fee to the grantor of the awards for the right to promote the Adviser's receipt of the awards nor was the Adviser required to be a member of an organization to be eligible for the awards. For full disclosures, click here. For both social media and peer-to-peer payment applications, the utility of the networks increases as an exponential function of the total number of people on the network. If nothing happens, download Xcode and try again. Use Git or checkout with SVN using the web URL. The ARK Fintech Innovation ETF (NYSEARCA: ARKF) is a prime example of an ETF with a slew of tailwinds and many of those are derived from two marquee holdings: Square … The content is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect to any products or services for any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. ©2020. At some point, Square could integrate Square Online Store with Cash App, enabling Cash App users to search for and purchase Square seller products, much like Shopify’s Shop application. Note that ‘Active Digital Accounts’ might not include all of a bank’s retail customers and therefore increase the average revenue per account. The reason consumers cite most when deciding on a new product or service is the rate or fee, followed by simplification. In 2019 and 2020, however, search activity for Cash App in other states picked up significantly, pointing to user growth in higher income demographics. Square Valuation Extract. Today, ARK identifies five major innovation platforms evolving at the same time and transforming industries. All content is subject to change without notice. Ark invest square analysis Figure 4. All content is original and has been researched and produced by ARK unless otherwise stated. ARK focuses on innovation so that our investors can capitalize on four market inefficiencies. ARK Invest currently offers some of the best performing ETFs over the past five years. View Ark Invest SQUARE - Google Docs.pdf from ECN 135 at University of California, Davis. A big reason the ARK Fintech Innovation ETF (NYSE: ARKF) is higher by 71.32% this year is the growth of digital wallets, such as PayPal's (NASDAQ: PYPL) Venmo and Square… If nothing happens, download GitHub Desktop and try again. We describe Cash App’s innovative marketing strategies in one of our previous blogs. If nothing happens, download the GitHub extension for Visual Studio and try again. In other words, consumers have committed to 1.8 financial products or services on average. [5] The network effects associated with peer-to-peer payments could prove more effective than those that Facebook, Google, and other social media enjoyed 10 to 15 years ago. Metcalfe’s law states that the utility of a communications networks scales proportionally to the square of the number of nodes. While ARK’s current assessment of the subject company may be positive, please note that it may be necessary for ARK to liquidate or reduce position sizes prior to the company attaining any indicated valuation prices due to a variety of conditions including, but not limited to, client specific guidelines, changing market conditions, investor activity, fundamental changes in the company’s business model and competitive landscape, headline risk, and government/regulatory activity. Ark Invest’s Cathie Wood Says Big Tech Firms Exploring Bitcoin Ark Invest founder and CEO Cathie Wood says she is expecting a new wave of institutional investors to put Bitcoin on their balance sheets. While credit cards have commoditized during the last ten years, Square has focused on enabling businesses to grow with a suite of software services and access to working capital. Moreover, according to a Jefferies survey in 2019, Square Payroll is the second most popular payroll software in the US small and medium business space, trailing only Intuit’s QuickBooks. The investment fund assumes Tesla’s largest revenue driver in 2024 will be robotaxis. If primary and secondary users each were to monetize at 30% instead of 20%, its price target would approach $500, delivering a 26% compound annual rate of return during the five years ended December 2025. Square is No. Square Capital, Square’s small business lending arm, increases its originations as a percentage of gross payment volume (GPV) from 2% in 2019 to 4% in 2025. Ten years after launching a revolutionary credit card ‘dongle’ reader, in our view Square still offers sellers the best value proposition. In our view, it is the most durable metric for a bank’s customer base as it is reported by the bank itself and 85.5% of the US population accessed the internet in 2020. The five industries that could be disrupted by innovation in the coming years. As a result, Cash App’s ARPU could be multiples higher than the $260 modeled in our base case during the next five years. Likewise, Square Capital originations should double from 2% of GPV to 4%. [1] The net interest income tied to a small subset of customers accounts for the majority of this revenue.[2]. Published 30/9/2020. As another example of companies struggling to build out front-end relationships with both consumers and businesses, JP Morgan recently shut down a payment network that attempted to link consumers and businesses directly. Source: ARK Investment Management LLC, 2020, On average, Wells Fargo, JP Morgan Chase and Bank of America generate roughly $880 in revenue per active digital customer per year. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. [3] For reference, private challenger bank Chime generated $100 in revenue per direct deposit customer, per our estimates. ARK's statements are not an endorsement of any company or a recommendation to buy,sell, or hold any security. The projected share price changes substantially dependent on Cash App’s monetization level. The content presented does not constitute investment advice, should not be used as the basis for any investment decision, and does not purport to provide any legal, tax or accounting advice. download the GitHub extension for Visual Studio, https://ark-invest.com/analyst-research/square-valuation, https://ark-invest.com/wp-content/trades/ARK_Trades.pdf. Like Cash App’s network effects on the consumer side of the equation, software services seem to have increased seller retention as measured by Square’s positive gross profit retention for cohorts measured quarterly and annually since 2012. Today, Square pays fees, including those for interchange, assessment, processing, and bank settlement, to various third parties. In contrast, while Visa credit cards impact millions of consumers and merchants, many third parties sit between them, preventing Visa from engaging with either consumer or businesses in real time.[6]. Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation. Historically, Square has focused on building proprietary technology and deep partnerships, taking time to understand markets, rather than blitz-scaling across geographies. Cash App Could Be the Fastest Growing Digital Wallet in the US, Venmo vs. Cash App: A Look Inside the Most Popular Consumer Finance Products in the US, Square Cash App’s Viral Marketing Strategy Attracts Users. The information provided here is intended for educational purposes only and is not guaranteed to be for! Continues to expand, growing transaction-based revenues at a 19 % compound annual rate, the valuation extract on.... Not have investment banking, consulting, or any type of fee-paying relationship the! Ark identifies five major innovation platforms evolving at the link here strategies in one of our Square valuation.! 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