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Is Square A 'Fax Machine' Business?

Summary

I believe many of Square’s product and service offerings are likely to be ephemeral technologies, lack sufficient demand, and/or surrender market share to other market participants.

Square’s Caviar acquisition to break into meal delivery will likely see competition from Uber and perhaps many other players.

Square Capital is likely to be the company’s most innovative segment with the uniqueness of its lending practice and the way it can potentially scale the remainder of the business.

I have been short Square (NYSE:SQ) since mid-April, as I have reservations about the long-run vitality of the company's product portfolio and service offerings. I believe that many/most of Square's products are fleeting innovations that will have little stick in the marketplace long-term. It's not that Square cannot innovate with respect to future product releases, but I believe the long-term potential of its current product portfolio is flimsy, may disappoint with respect to meeting future demand expectations, and will cede ground or fail to achieve market share due to alternative innovations. The company's lack of competitive advantages is why I've decided to go short based on the current information available.

The company's initial flagship product, Square Reader, is a credit card swiping machine that hooks up to a smartphone through the audio jack. I believe Reader lacks market staying power as phone-to-phone payment transfer becomes increasingly more common. The company already does possess a phone-to-phone payment service through Square Cash, but faces competition in a cramped market space, including established market players PayPal (NASDAQ:PYPL) and Skrillex, in addition to PayPal's service, Venmo, which is currently cost-free for bank account transfers and enjoys a...


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