Block: A Financial Powerhouse

Block, formerly known as Square, has transformed from a humble startup with a card reader into a $40 billion financial services and software giant. With an impressive portfolio that includes Square, Cash App, Afterpay, TIDAL, and TBD, Block continues to expand its reach and influence in the financial world.

Section 1: Background and History

Block was founded in 2009 by Jack Dorsey, co-founder of Twitter, and Jim McKelvey. The company began with a simple idea: to provide small businesses with the tools to accept card payments easily and affordably. The first product, the Square card reader, turned a smartphone into a payment terminal, revolutionizing how small businesses could transact. Since its inception, Block has grown exponentially, diversifying its offerings beyond payments to create a comprehensive ecosystem that empowers both businesses and consumers.

Today, Block operates six major business units: Square, Cash App, Afterpay, TIDAL, and TBD, all of which align with its mission of promoting economic access and empowerment.

Section 1.1: Acquisitions

Some of the notable acquisitions include:

• Afterpay (2021): Acquired for $29 billion in an all-stock deal. Afterpay is a "buy now, pay later" platform that allows consumers to purchase items in installments.

  
  

• TIDAL (2021): Acquired a majority stake for $297 million. TIDAL is a music streaming service, which integrates financial services with the music industry.

  
  

• Credit Karma Tax (2020): Acquired for an undisclosed amount. Credit Karma Tax is a free tax filing service that Block integrated into its Cash App, allowing users to file taxes directly from the app.

Section 2: Business Model

Block operates two main ecosystems:

• Square: Provides financial services and software to small, medium, and large businesses, including payment processing, loans, payroll, and other tools to help manage and grow their operations. Food & drinks (32%), retail (18%) and professional services (11%) industries are the largest users of Square.

• Cash App: A consumer-focused platform that offers peer-to-peer payments, Bitcoin and stock trading, and banking services. Afterpay is integrated into the platform and connects both the consumer and merchant sides. Cash App has become popular among younger consumers for its ease of use, low cost, and innovative features. Big box & discount retail (22%), restaurants (19%), and gas & auto (13%) industries are the largest users of Cash App.

Block has capped its total employees to 12,000, and has 57 million active users.

Section 3: Market Size and Opportunity

Block targets two huge markets: small to medium businesses and consumer financial services. Square offers a $130 billion global profit potential worldwide, while Cash App offers a $75 billion profit potential in the U.S. alone.

Section 3.1: Competition

Block’s main competitors include:

• Stripe: Rivals Square by offering payment processing and financial software solutions to businesses.

  
  

• PayPal: Competes with Cash App in digital payments, peer-to-peer transfers, and consumer financial services. Owns Venmo.

  
  

• Klarna and Affirm: Compete with Afterpay in the "buy now, pay later" market, offering installment-based payment options to consumers.

  
  

Section 4: Revenue

The company earns revenue through multiple channels:

• Square (56% of Revenue): Generates revenue from payment processing fees, subscription services (such as payroll and loans), hardware sales (like payment terminals), and software tools designed to help businesses manage their finances.

• Cash App (44% of Revenue): Revenue comes from instant deposit fees, Cash Card transactions, Bitcoin trading fees, buy now pay later (Afterpay) and fees from business payments.

Note: Block is one of the largest Bitcoin holders, with 8,027 coins valued at $550 million as of September 2024.

Section 5: Strategy

Block's strategy is to connect its different services more closely, using data to improve user experience and maintain a strong brand. By integrating acquisitions like Afterpay, Block aims to increase how customers use its various services and offer more value.

For Cash App, the plan is to add more products and services gradually, which keeps customers engaged and using the app more often, driving growth in both revenue and user numbers.

Section 6: Fundraising

Block (then Square) went public at an initial public offering (IPO) price of $9 per share on the New York Stock Exchange (NYSE) under the ticker SQ, giving it an initial market valuation of around $2.9 billion.

Section 6.1: Ownership

Jack Dorsey is the largest shareholder with 8.5% of stake with over 40% of voting power.

Note: Stake is based on 79% of the Class B Shares and 0.2% of Class A Shares.

Section 7: Competitive Advantage

Block’s approach to creating a “closed-loop” network that connects both sides of its ecosystem offers it its moat. This model not only reduces transaction costs but also creates a virtuous cycle of growth (network effects), where increased engagement on one side of the ecosystem drives growth on the other.

By developing products that meet real needs and maintaining a strong brand, especially among Millennials and Gen Z, Block has established a unique position in the financial services market.

(Source: Block, Pymnts)