How This Company Is Setting Itself Up for Success Through the Power of 'Ecosystems'
Turning yourself into a one-stop shop is a recipe for success...
Look at a company like Apple (AAPL). It has a wide range of products – from smartphones to wearable technology to even cloud storage. The best part about these services is that they only work (or work best) when used together.
For example, Apple's AirPod headphones and Apple Watch work with devices from competing smartphone companies, but they are more compatible with Apple's own iPhones. And once customers have an iPhone, they're more than likely going to stick with other Apple products in order to make sure that their products work best together.
This keeps users within Apple's "ecosystem," and gives it more ways to profit from each user – through phones, cloud storage, and more.
Apple isn't the only company with a comprehensive "ecosystem" of products. The Microsoft (MSFT) 365 software and Intuit's (INTU) personal and business tax software offerings are two other great examples. And today's company fits the bill as well...
Payment-processing juggernaut Block (NYSE: SQ) – formerly known as Square – has revolutionized payment processing for small merchants. America is going cashless, and Block is the leading edge of this space.
Block got its start from selling small merchants a little credit-card reader – or Square. And this part of Block's business still has that name today. Anywhere that cash used to be king, Square is taking over. The card reader started as an insert that allowed users to accept credit-card transactions with their smartphone. It then grew to offer standalone payments terminals.
The game changer was that Square's reader can also "talk" to your phone. It can accept contactless payments from services like Apple Pay and Google Pay.
Block also offers software and subscription services for businesses. This includes things like payroll and back-office support, business bank accounts, and more. Block will even help businesses set up and run online stores.
Aside from the business services, Block also has a suite of products for individuals. In fact, Block is changing everything American consumers know about personal finance with an app on your phone...
Cash App is Block's consumer-facing app for moving money around. It does everything – from peer-to-peer payments, banking services (including bank-to bank payments and direct deposits), short-term lending of up to $200, bitcoin services, and brokerage services including fractional-share sales.
All of these services make up Block's ecosystem. This wide range of offerings means users don't have to turn to competing companies, and Block can earn more from each customer.
This ecosystem approach is helping the company thrive...
In the most recent quarter both earnings and revenue beat estimates. Revenue grew an incredible 29% year over year. Block's largest segment this quarter was its bitcoin business, which takes a fee off every crypto trade on Block's Cash App. The bitcoin segment reported revenue of $1.96 billion, just about in line with Wall Street's estimate.
Block's earnings and revenue for 2021 also beat expectations, with revenue growing 86% from 2020. A lot of this growth was because Block "lapped" easy comparable periods in the first two quarters of the year (this time in 2020 saw the harshest lockdowns on consumers and businesses). However, revenue still nearly quadrupled from 2019.
But Block's commentary on its customers was even more important...
In its quarterly shareholder letter, Block said that 38% of its gross profit this year came from customers who use more than four of its services. That's up from these users making up just 10% of Block's gross profit in 2016.
Block continues to grow its user base. And these customers are using more and more of its services, becoming a huge part of its profits. This is the power of having a strong ecosystem.
But despite the strong growing business, Block's shares have plummeted alongside the broader tech sell-off. As a "high flying" growth stock, Square became an easy source of funds for investors looking to lower their exposure to technology in recent months. The stock is down more than 60% from its all-time high in August 2021, sitting at the lowest levels since June 2020.
The earnings report sparked a surge in the shares on Friday, when the stock closed up more than 26%. Still, it's well off its highs. But that means the stock is trading at a great price for new buyers... And this company is building one of the best "ecosystems" in the financial technology sector.
Sometimes investing is simple.