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As of the end of last year, the Cash App mobile payment app from Square (NYSE: SQ ) caught up with the Paypal Holdings (NASDAQ: PYPL ) rival app Venmo in terms of active users.
Source: Chris Harrison via Flickr (Modified)
Since then, Instinet analysts Dan Dolev and Conan Leon have seen Square's Cash App move ahead of PayPal's platform. As of June, they measure 56.1 million people using Square's tool on a regular basis, 6.4 million than the headcount of Venmo's user base.
It's not a reason in and of itself to step into SQ stock, or shed PayPal shares if you own them. Indeed, it's only an anecdotal data nugget one would expect regarding a relatively young newcomer aiming to take a bite out of an established company's market share.
On the other hand, perhaps it's a glimpse of a paradigm shift that will eventually, decidedly favor Square stock over shares of its chief competitor.
Square Stock Is for Real
Philosophically-driven investing can be a dangerous game to play.
The advent of affordable 3D printers in 2012, in step with the a renewed affinity for cottage businesses, drew investors into names like 3D Systems (NYSE: DDD ) and Stratasys (NASDAQ: SSYS ), only to burn them. As it turns out, setting up a profitable manufacturing business in your garage isn't as easy as it presumed.
Wearables was another mania that failed to live up to the hype. Fitbit (NYSE: FIT ) could do wrong until shortly after its June-2015 IPO. Since August of that year Fitbit could do nothing right. It's down more than 90% from its peak, and once again knocking on the door of new record lows.
The slow shift to a cashless society and the continued preference for living digitally-mobile lives, however, isn't hype. It's an inevitable future.
There's room for more than one player in that future, but it's a future that favors SQ stock for one overarching reason: PayPal is a first-generation web company, and we're now into the web's second act.
Leading the charge now is the demographic that's never known a world without the web, and a group of consumers that's enormously familiar (and in love) with the mobile devices.
PayPal, Venmo and Square Stock
PayPal has been around, incredibly enough, since 1998, which is roughly around the time ecommerce sites like Amazon.com (NASDAQ: AMZN ) and eBay (NASDAQ: EBAY ) cultivated a need for online payment solutions. That's largely why most consumers over the age of 40 are familiar with the middleman's name; they've likely used it.
Unfortunately, PayPal has at least been found somewhat guilty by association. Younger consumers, who are starting to enter their high-earnings years, specifically don't want what their parents had.
Case in point: Younger Facebook (NASDAQ: FB ) users made their way in droves to alternatives when they started finding their parents had invaded their digital social circle .
Many of them have spent the better part of their adult lives hearing about and even using social networking, expressing every thought presumed worth sharing.
Square's Cash App facilitates more of that all-important text-based communication when sending or receiving money. The app continues to satisfy the new norm for constant contact.
To its credit, PayPal's Venmo has kept PayPal relevant by adding a similar messaging option to its peer-to-peer money-transfer platform.
Clearly owners and heavy users of mobile devices though, who are more likely than not to be younger than not, are more compelled by Venmo .
The new-era differentiation doesn't quite end there, however.
PayPal has since followed suit, but it was noteworthy that Square was the first to do what was once unthinkable. That is, establish a means of offering small business loans.
It's a step toward fully serving underbanked and even unbanked consumers, which is a decision less and less prompted by modest incomes.
A World Economic Forum poll conducted last year found that only 45.3% of the sub-30 generation believes banks are fair and honest . They're more trusting of technology, which in this case is a nod to fintech.
PayPal may be struggling to shake off the image that it's somehow closely linked to established banks, even if that assumption isn't quite on-target. At its inception, a bank account was still necessary to deposit and withdraw funds.
The clincher? Blockchain. Last month, Square added Bitcoin deposits as an option for Cash App users .
Millennials are far more willing to utilize a non-fiat currency, and they soon will be displacing their parents as the target market of choice.
Bottom Line for Square Stock
It can't be overstated that this shift is so big and moving so slowly, it might be impossible to gauge. It took years for mobile phones to become the norm and make landlines the oddity . Though electric cars are the inevitable future, their availability for years hasn't even made a dent in the combustion-driven vehicle's dominance.
The differences between PayPal, and even Venmo, and Square's Cash App are very nuanced, and the two companies are sure to slug it out for the full 15 rounds.
This is a match the young lion is going to win over the old lion though, even if for purely generational and cultural reasons.
Square stock is shaping up as the better play here, even if it's going to take years to realize it.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com , or follow him on Twitter , at @jbrumley.
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