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What Twitter CEO Jack Dorsey stepping down means for Square

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Macquarie Capital Senior Equity Research Analyst Paul Golding joins Yahoo Finance Live's Zack Guzman and Jared Blikre to talk about what Jack Dorsey's stepping down as CEO of Twitter could mean for Square.

Video Transcript

ZACK GUZMAN: Welcome back to Yahoo Finance Live. I want to focus in on a key departure from one of the names maybe we haven't talked about as much, given all of the things going on at Facebook/Meta and Snap's big rally as of late as a social media-- a dominant player in the pandemic. But at Twitter, Jack Dorsey's departure could mean positives for Square, as he's now CEO of only one of those companies, as Twitter CTO ascends to the role there at Twitter.

But what does it mean for Square, given all of the enthusiasm we've seen from Jack Dorsey, particularly when it comes to Bitcoin and other opportunities in crypto? For more on that, happy to welcome in Paul Golding, Macquarie Capital senior equity research analyst joins us now. And Paul, when we chat about this, it is interesting just because it does seem like-- this is just from the outside looking in-- it seems like its heart was more focused on Square just because of all the things he's been tweeting. Maybe that's somewhat ironic, but tweeting about crypto and what could be possible in building that out. So what does it mean for Square, the company, though, as maybe he focuses more on that opportunity?

PAUL GOLDING: Well, first off, thanks so much for having me on. In looking at what this move could mean for Square or why it makes sense to us at the very least the Jack would stick with Square between the two companies, running the two companies, look at where Square is right now.

In the midst of the Afterpay acquisition, getting those approvals through from a shareholder and regulatory perspective, particularly the Afterpay shareholder vote coming up on the 6th, and just in general, in what's happened with fintech and the uptake of digital transactions through the pandemic, we've seen tremendous uptake in use of digital payment methods and e-commerce, as opposed to cash, which has been used less as a result of the proliferation of digital rails, as well as just for hygienic reasons.

And so, I think Jack may be looking at this opportunity with Square as less of a mature market, more of a malleable situation, where he can bring Square to the forefront of so many of these new innovations and new ways of conducting commerce.

JARED BLIKRE: And also, I mean, if you think about it, you give Jack Dorsey a choice. You could be the public CEO of a company that deals with hate speech, or you can deal with-- or you can be the CEO of a company that plays around with crypto and payments. It'd be an obvious choice for me. But I want to get back to Twitter and their monetization plans. They have the old CTO who knows the company very, very well. Do they have the direction and leadership, do you think, to be able to execute, whereas they haven't before?

PAUL GOLDING: Well, we don't cover Twitter. We're not Twitter analysts, so I can't speak to that. But what I can speak to on your prior comment right there on Square in terms of how the ethos and the feelings, maybe the sentiment associated with the different operations, relate to this, his conversation constantly around Square has been about leveraging the platform and innovation to democratize finance and bring consumer financial inclusion more broadly for the unbanked and underbanked. And so, in looking at that and how he can monetize such a, I guess, an altruistic or positive pursuit, it is a bit of a distinction with other sectors, other companies, social media, et cetera.

ZACK GUZMAN: There's also so much going on. It's wild when you think about what Square's been up to in the Afterpay move and then also Tidal, which no one really talks about. But when you think about what Jack Dorsey might be wanting to do around NFTs or what crypto could provide in the music space, I always thought that was an interesting move. When you look at maybe the upside here, and I think, what, you have a price target here, 12-month price target of 325, when you look at maybe the upside and what might be the most significant driver to get there, what has you most excited about what this company could do with a fully invested Jack Dorsey?

PAUL GOLDING: I think the compound effect of the flywheel with a closed loop network that becomes more and more robust. So when we think about Cash App and Seller as ecosystems and the opportunity with or without Afterpay, but at the moment, Afterpay is a hopefully structural component, depending on the outcome of these regulatory reviews and shareholder votes. But in unifying Seller and Cash App, it's an opportunity to compound that closed loop potential and the flywheel effect.

So, as deposits potentially grow on the Cash App side and engagement grows on the Cash App side and utility grows-- for example, the Credit Karma tax filing business unit acquisition that Square did that has now become Cash App Tax that allows you to get your-- to do your taxes through Cash App and get your refund-- all of that concentrates households' discretionary liquid funds on Cash App. And then that means that when used to engage with merchants and leverage boost rewards and all these other functionalities-- invest in crypto, invest in equities-- all of that functionality means this becomes a destination for full service consumer finance needs. And so seeing that and the opportunity to monetize that destination effect is where we see the value in this company coming from.

JARED BLIKRE: And I'm looking at the stock, the year-to-date performance of Square. It's down about 4%. And I look in the payments space, Mastercard, Visa slightly underwater, PayPal even worse. I'm just wondering, these stocks have traded sideways most of the year to down recently. And that's after having very good performance last year. What happened that's a little bit different this year?

PAUL GOLDING: Well, I think it's been a volatile environment and tough to gauge what the run rate growth of these businesses could be in terms of having such a shock to the system in terms of acute use spikes in demand from the pandemic. And so, as guidance has been given or expectations have baked in whether in consensus or otherwise, and then potentially, from a go forward perspective, have come back to earlier expectations in 2021, as opposed to where they had run up to, I think that's driven some of the reversal here.

There are also some things of concern in the marketplace, like whether rates rising could impact the propensity to use Buy Now, Pay Later among consumers and as well as just what these BNPL platforms can offer. And so, when you bundle all these things together, maybe lower expectations versus most recent guidance or lower expectations as to the potential penetration of some of these new products, whether it's Buy Now, Pay Later or otherwise, then you start to see a bit of a rewrite. And I think that's what we've seen so far.

JARED BLIKRE: And Paul, we got to leave it there. But thank you. Appreciate your time stopping by. I didn't mean to put you on the spot with Twitter there. But Paul Golding, Macquarie Capital senior equity research analyst, thanks for stopping by.

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