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Investor Highlights: Square’s Acquisition of Afterpay

Investor Highlights: Square's Acquisition of Afterpay
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square now to forbid (NYSE: SQ), has gone through its fair share of changes lately – the name change is the most obvious. But the company is also taking another big step in the form of a $29 billion acquisition of Australian fintech Postpaid (OTC: AFTP.F). The purchase is expected to close later this quarter.

In this section of Backstage passAnd registered in December 17, Fool contributors Toby Bordelon, Travis Hume, Jason Hall, and Lou Whiteman discuss.

Toby Bordlon: I love this, Travis, because it’s in the news today, or not the deal itself, but the industry we’re talking about. You have Square and Afterpay, what’s going on here?

Travis Home: This was one of the biggest deals we’re going to talk about. I think Lou beat me a little bit, but Square acquired Afterpay. This page in their presentation announcing the deal sums it all up for me. What Square’s business really became was the Square app for businesses to process payments, and the Cash app, which was primarily for consumers, for individuals.

I started transferring money to pay for pizza or something five or six years ago. Now, you can trade Bitcoin, you can buy and sell stocks, you can do all kinds of financial. It has truly become a consumer financial app more than anything else. But they really lived separately.

It’s been really interesting to watch Square’s business grow over the past few years, that you can have this cash app and not even realize it’s a Square product because it doesn’t say that anywhere.

When they acquired Afterpay, the idea was to have a bridge between these two products. This is, I think, an introduction to not only what I think Square is trying to build in the payments business, I think they are effectively trying to get rid of the middleman, and that means VisaAnd Master Card Credit CardAnd American Express, all banks, and make people pay directly with Cash App.

You can now pay with the Cash app on Square devices for some sellers. I think we will continue to push that forward. Ironically soon after that they renamed themselves Blok, [laughs] And I had to write this down because they said they would keep the Square, the Cash App address and TBD54566975, something Bitcoin or some other business, they would all keep their own branding.

Now, I don’t know if this brand is TBD [laughs] It is a great brand now. I think the idea for them is that we have all these really strong companies and how are we going to bring them together? Afterpay had at least one thesis on how to do this.

Now, whether or not that works in the long run is probably another story, but I think if we see Square trying to find ways to cut out the credit card business and go directly from one Block product to another Block product where they are doing the transaction in the middle. I think this could be something really interesting and annoying for the company in the long run.

Jason Hall: I want to talk about the label. on that.

Howe: [laughs] This is a mess.

lounge: the alphabet I got hurt. I actually think Facebook social networking site Perhaps it is also true, we will find out depending on its implementation. But Jack Charlie Browned just this, he really did. He’s terrible. [laughs]

Howe: It’s Block.xyz is their website.

lounge: It embraces blockchain quite a bit.

Lou Whiteman: Square’s CEO could learn something from Twitter CEO and what he’s done lately in my humble opinion. [laughs]

Bordlon: get down?

White man: Look, pretty quick on this because I have no doubts that Square is a great company. I wouldn’t bet on them, and wouldn’t cut them short, but I personally decided to buy PayPal Instead of Square, which, to me, is Afterpay, it supports that decision.

They paid $29 billion for this, which is a very attractive feature, but an advantage. PayPal has the same technology as we’re looking forward to in 2008, buying Bill Me Later for $945 million. They were proactive, not reactive.

In its 15-year history, PayPal has purchased a few dozen companies for a total of $13 billion. Jack spent $29 billion to play catch-up on a feature. It’s a huge market, and there are many winners.

I don’t doubt Square will be the winner, but I don’t trust Jack and I don’t trust Square and Afterpay. The price they pay for it confirms my bias.

Bordlon: You’re saying $945 million is a better deal than $29 billion?

White man: Also, the insight to buy it in 2008 for “Oh, shoot. We’ll play catch-up in 2020.”

Bordlon: that’s fair. that’s fair.

White man: I do not know. I’m terribly oversimplifying, but I don’t know.

lounge: I’m so glad to be on a show with you, Lou. [laughs]

White man: Jack, you can look at me on Twitter, if you’d like. I think you are still used there.

Bordlon: Maybe he’ll put you on his Christmas card list.

White man: I’ll be a shadow man.

Bordlon: Actually, take a tip to retire from his second company, right?

Howe: That’s one of those things although I think, one of the things with Jack Dorsey, we don’t really know what he’s necessarily thinking with some of these things until maybe five years later. We know he’s obsessed with Bitcoin.

There’s something going on here with their payments app, Cash app, Bitcoin, Afterpay, there’s kind of, I don’t know, I can see.

lounge: Misunderstood genius here, isn’t it Travis?

White man: You did not mention the music app.

Howe: I drink Kool-Aid on some stuff. Encryption is here to stay. I think this is very clear. If I’ve made transactions in some — not necessarily Bitcoin, but — some faster cryptocurrency, there’s no reason why I can’t plug in my crypto wallet to pay for dinner or something, and effectively get a fee that’s a fraction of a penny instead of a payment Roughly three percent, which is what you pay Square, and Square doesn’t keep most of that money.

There is something potentially fun here. As for Lou, I don’t know if Afterpay is really needed [laughs] In that vision of the future, but I want to hold back a lot because I think there’s some integration and turbulence going on here in Jack’s mind, we don’t quite know what it’s like yet.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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