Twitter CEO Jack Dorsey addresses students during a meeting at the Indian Institute of Technology (IIT) in New Delhi, India, November 12, 2018.
Anushri Fadnavis | Reuters
Block managers no longer want the company to be seen as a pure payments game.
The San Francisco-based company on Wednesday held its first investor day in five years, as C-suite pitched to Wall Street that the money app, along with its crypto and music-streaming business, should be valued as an “ecosystem” in while that.
“Calling a payments company is like describing Amazon as a bookseller,” Chief Financial Officer Amrita Ahuja told CNBC in a phone interview. “We have evolved in many different ways across multiple dimensions.”
CEO and co-founder Jack Dorsey, who previously ran Twitter, kicked off Wednesday’s presentation with a keynote address on the future evolution of Block and Bitcoin’s role. He said it was “difficult” to put a company like Block in one category.
We are no longer just a payments company,” Dorsey said during the event, which was broadcast live. “A lot has changed since our last investor day.”
Square was founded in 2009 and made its name by creating a mobile credit card reader. The company has expanded its scope to include peer-to-peer payments and bank-like products using the Cash app. The company has also acquired music streaming service Afterpay and Jay-Z’s Tidal. It also operates a bank that is insured by the Federal Insurance Corporation (FDIC), and offers trading of stocks and cryptocurrencies.
Square’s rebranding to Block was intended to reflect this expanding slot and broader plans around crypto and blockchain.
While fintech companies have been among the top performers during the pandemic, Block and its peers suffered a defeat in 2022 amid rising interest rates. ARK’s Fintech Innovation ETF, a basket of fintech names, is down about 55% since the start of the year. The mass itself decreased by approximately 45% in 2022.
Focus on profits
However, Block Ahuja’s chief financial officer said that the company is outperforming its peers in terms of profitability. Block released updated profit margins on Wednesday – an increasingly important metric as investors prioritize bottom line over growth.
Adjusted profit margins for Square Side from business last year were 34%, and they were 12% for cash applications, according to the company. On the pure growth side, Cash App now has 46 million monthly active users and 80 million annual active users as of March.
“Wall Street analysts will want to understand our growth profile, our margin structure as a company — you can see based on our track record that we are outperforming the rest of the industry,” Ahuja said. “We operate in a large and growing market and we are still taking our share.”
Block completed a $29 billion deal to buy Australian fintech company Afterpay earlier this year as it expanded into the installment loan market. The CFO highlighted the opportunity to cross-sell with approximately 6% of the cash app users also using AfterPay.
The lending sector has become popular with consumers and merchants, along with a boom in online shopping. Divides the cost of a larger purchase into four interest-free installments. Despite consumer resistance, Ahuja said it’s more secure than a traditional card because consumers can’t get additional loans if they miss repayments.
“Millennials and Generation Z are frankly skeptical of traditional forms of credit, which leave people in a debt spiral,” she said.
Block also acquired Jay-Z’s music streaming company Tidal for nearly $300 million last year — at the time it was a scratch-off for some payment analysts. Dorsey said it was a bet on the creative economy, which he argues will continue to grow as AI removes “more and more of the need for mechanical action.”
“This is going to be a massive economy in the future, and we see an opportunity to be a big part of it, all with the tools and platform that we’ve already built,” Dorsey said. “We acquired TIDAL because we saw that artists were going down a similar path to small businesses, and that there was a huge gap in the market around artist tools.”
Dorsey’s Bitcoin Affair
As of the quarter ending in March, Bitcoin still generated only approximately 5% of Block’s total earnings. But executives are betting on cryptocurrency as a secular trend in which Block could be well positioned. Dorsey called it the “open standard for global money transfer” and said it would allow “the entire blockchain business to move faster globally.”
Block first started offering bitcoin trading through the Cash App, which the company keeps on the company’s balance sheet as an alternative to cash. The world’s largest cryptocurrency has fallen more than 50% from its highs and is struggling to regain its value so far this year.
Block’s crypto business has expanded into a bitcoin hardware wallet, bitcoin mining business, and an open source business called TBD for developers. Furthermore, there is an independent Bitcoin-focused business within the Block called Spiral.
Dorsey is not optimistic about other cryptocurrencies and said, “The Internet requires a native currency for itself, and in looking at the entire ecosystem of technologies to fill this role, it is clear that Bitcoin is currently the only candidate.”
“Its development may appear slow compared to other candidates, but this is a result of the deliberateness required to preserve the attributes needed to store and move funds,” Dorsey plans to say, according to Wednesday’s keynote transcript seen by CNBC. “The Internet requires a native currency for itself, and when looking at the entire ecosystem of technologies to fill this role, it is clear that Bitcoin is currently the only candidate.”