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Is Jack Dorsey a true believer in financial fairness for all?
We revisited Block $SQ this week on our podcast, and I was once again blown away by the unit economics at their two core businesses -- Square and the Cash App. For example, at the Cash App, it costs $10 on average to acquire an active customer and within 3 years each of those customers contributes $60 in gross profit. Impressive.
The unfortunate part however, is that none of the dollars generated by these wonderful businesses actually go to the shareholders. Instead it goes to things like buying Afterpay at a clear premium, buying Tidal so Jack can be friends with Jay-Z, and random bitcoin projects because Jack says so (and just overall operating expenses). I know I sound like a hater, but bear with me.
There are probably some people that believe in not only what Jack Dorsey says about how bitcoin can level the playing field for everyone and democratize the financial system and so on, but also probably believe in him as a CEO. I respect that. What I dislike though, is the hypocrisy of it all.
In last year's proxy statement, there was a proposal to gradually remove the disproportionate voting rights on the dual class share structure. If this happened, that would mean that every share would be equal to one vote, aka fairness for all, right? However, the board (led by Dorsey) opposed the deal. Now why would some who is so in favor of leveling the playing vote against something that does just that? Well because he'd lose his voting power. So he's a fan of fairness for all but only when it benefits him.
If the share structure was changed, it would allow activists to step in and help realize what the business is truly worth. If that ever happens, I will be once again eager to be a shareholder, but until it does I have a hard time owning the business given that there is literally no telling what Jack Dorsey will do with the money. Maybe he'll buy another $500 million worth of bitcoin or even more, who knows?
We broke down the whole business here for those that want to listen: https://open.spotify.com/episode/1MXPZhLJE3SxpB1NdhbTfU?si=b3aLEENsRxev8k4J66zzZg
Spotify
Block (Ticker: SQ) Not So Deep Dive
Listen to this episode from Chit Chat Stocks on Spotify. Block, formerly known as Square, is a financial services and digital payments company that provides mobile payment solutions and other financial services to small businesses and individuals. The company was founded in 2009 and is headquartered in San Francisco, California. At the end of the month, we will publish an Arch Capital episode that will cover the company: Nelnet. Listen closely as Brett and Ryan go through the history, financials, and future prospects of Block. Enjoy the show! ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Contact us: chitchatmoneypodcast@gmail.com Timestamps Company Background | (3:06) Industry | (17:40) Management & Ownership | (22:30) Earnings | (27:09) Balance Sheet | (30:28) Valuation | (33:24) Our Analysis | (34:39) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show.
Tidal and Bitcoin projects cost very little as a proportion of overall costs.
On the face of it, they used too much of their own stock to acquire Afterpay (though both Square and Afterpay were very richly valued at the time). However, the Discover Tab could be hugely profitable so I think we have to reserve judgement on the Afterpay purchase for now.
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