Amazon’s financials through charts

Amazon is the last of the big techs to report earnings. You can find its press release here. I’ll show my notes through the charts below. In short, AWS, advertising and Prime’s price hike are the only bright spots while the rest could be best characterized as concerning, if not downright disappointing. Of course, Amazon is famously playing the long game, but as FCF is significantly down while ex-AWS revenue is tremendously down, management needs to send some positive signals soon.

Revenue’s growth decelerated significantly after being boosted by Covid

Amazon's revenue and growth

International sales dipped for the first time while AWS continues its hot streak, recording more than $62 billion in revenue in 2021

North America, International and AWS revenue

Both North America and International were in the red in Q4 FY2021. AWS is the sole reason why Amazon has a positive operating margin

Amazon's operating income

North America and International have seen decreasing growth for the last three quarters. International even contracted in Q4 FY2021. AWS is impressive

North America, International and AWS's YoY revenue growth

Online Stores contracted modestly in Q4 FY2021

Amazon's business segments YoY growth

Negative TTM Free Cash Flow

Amazon Trailing Twelve Month FCF

Amazon spent $72 billion in shipping costs in 2021. It crossed $20 billion a quarter mark in Q4 2021

Amazon's shipping costs

Amazon spent more than $13 billion in Video and Music expenses

Amazon's video & music expense

Apple’s financials through charts

Apple revealed a stunning quarter last Thursday, surprising analysts and, in my opinion, even themselves. You can listen to the earnings call and read the 10Q here. I am putting the numbers in perspective through the charts below. If you find my work useful and informative, I’ll appreciate a thumb up or a follow. Have a nice weekend!

Apple had about $124 billion in Q1 FY2022. If we look at the last four quarters, it generated $94 billion a quarter, higher than most Fortune 500 companies did in 2021

Services has got a lot of attention due to its explosive growth, but Product and iPhone in particular are still the main revenue drivers

Both Product and Services’ gross margins have been increasing in the last 2 years. Services’ margin is an astonishing 72%

Wearables is now Apple’s 3rd biggest business

Wearables and Services have grown every quarter YoY since 2018

Apple is back in China

Japan, Apple’s smallest geographic segment, has an astounding operating margin of 47%

Apple’s users are increasingly engaged within the ecosystem

Direct channels have made up 1/3 of Apple’s business in the last three years

Disclaimer: I own Apple stocks in my portfolio

Microsoft through charts

On Tuesday, Microsoft was the first big tech giant to report financial performance and they didn’t disappoint. They surpassed the market estimates on both top and bottom lines, as well as provided strong guidance. You can read an overview of the earnings call here. In this post, I’ll look at Microsoft the business through some charts that I hope will be helpful and informative to you.

Microsoft’s annualized revenue is now $185 billion at 20% growth!

Microsoft revenue

It’s highly profitable at 43% operating margin. Its annualized operating income stands at $80 billion

Microsoft's operating income and margin

All three primary business segments have 2-digit YoY revenue growth

Microsoft's main businesses growth

Azure and Cloud attract a lot of attention, but it’s Office and other productivity products that top operating margin

Microsoft's main businesses margin

Cloud is on fire. LinkedIn & Search surpassed the $10 billion mark in annualized revenue. Gaming, the 4th largest business, now has a $20 billion run rate

Microsoft's business lines revenue

Microsoft 365 has 57 million active users though growth is slowing due to the law of big numbers

Microsoft 365 subscriber

Azure’s growth is declining due to its size

Azure YoY revenue growth

LinkedIn quietly increases its active user base every quarter. Enterprise Mobility, Microsoft’s security package, also sees consistent growth

LinkedIn active users and Enterprise Mobility seats

Microsoft Teams sees an increasing adoption among corporations

Microsoft Teams sees an increasing adoption among corporations

Disclaimer: I own Microsoft stocks in my personal portfolio

Uber lags behind DoorDash in the U.S. Uber advertisers made up 18% of its merchants

Uber Eats in the U.S accounts for 23% of its total Gross Bookings. Still far behind DoorDash

To prove that it’s a valuable partner for merchants, Uber commissioned what they call Uber Merchant Impact Report. This report is based on internal data between October 2020 and September 2021, as well as an online survey of 727 U.S merchants whose response is anonymous. According to Uber, there are 400,000 active Eats merchants in the U.S alone. Hence, the number of surveyed responders (727) doesn’t seem very representative to me. Nonetheless, the report does have some useful nuggets.

In the last twelve months, Uber Eats facilitated $11 billion in “sales” for merchants in the U.S. The word “sales” here is tricky as I don’t know for sure whether it is Gross Bookings or what merchants actually receive after Uber gets its cut. The difference can be in the region of 25%. In this case, if we assume that the figure is Gross Bookings, it means that Uber Eats in the U.S was responsible for 23% of the company’s total Delivery Gross Bookings (approximately $48 billion) in the last year. Quite a significant piece of the business. However, it still lags quite far behind almost $40 billion in Gross Bookings that DoorDash recorded in the U.S in the same time frame.

Additionally, Delivery has 400,000 active merchants and 2 million active drivers in the U.S at the end of September 2021. In the past year, these merchants and drivers helped facilitate more than 500 million Eats orders. In contrast, DoorDash, if we assume all their Operating metrics are U.S alone, has 500,00 active merchants, 3 million active riders and almost 1.3 billion orders.

Uber Eats/DeliveryDoorDash
Gross Bookings between Oct 2020 and Sep 2021 (in $ billion)11 – 13.7540
Orders between Oct 2020 and Sep 2021 (in millions)5001,300
Active merchants as of end of Sep 2021 (in thousands)400500
Active drivers as of end of Sep 2021 (in thousands)2,0003,000
Comparison of operating metrics for the U.S market

Uber advertising is growing

Uber advertising was first launched in the U.S in Q3 2020, has since expanded to all Eats markets, exceptGermany, and has been seemingly well-received by merchants. The number of active advertising merchants grew from 30,000 in Q3 2020 to 140,000 a year later. As share of total active merchants, advertisers made up 5% and 18% in Q3 2020 and Q3 2021 respectively.

While the growth figures look good, I have a couple of concerns over this advertising business. The first is its outlook. We obviously can’t expect 100% of merchants to become advertisers. If 18% is the adoption rate right now, how much higher can it go? 25% or 50%? In that case, what would be the ramifications of having too many advertisers and too many sponsored listings on an app? We all feel annoyed with Google searched result pages littered with ads. If Uber is not careful, it will risk losing valuable consumers because of inferior customer experience. That’d be too high a price to pay, I’d say.

The second concern I have is whether this segment can actually move the needle. Uber revealed that advertising reached an annualized run-rate of $100 million in Q3 2021. Whether this number was annualized on a weekly or daily basis is unclear; which makes it impossible to really gauge how much revenue Uber actually generated from advertising. Additionally, even the annualized run-rate of $100 million is a drop in a bucket as Uber’s last 12 months’ revenue was almost $15 billion. Is advertising dollars helpful? Yes. Will it be a needle mover soon? I doubt it.

Netflix raised prices – Bullish or bearish?

If you live in the U.S and are planning to subscribe to Netflix, get ready to pay more. The company announced a few days ago that all plans for audience in the U.S would see a price bump with immediate effect. The basic plan will increase from $8 to $9 per month. The standard and the 4K package will cost new subscribers $15.5 and $20 per month respectively. The Verge has a handy table showing all the hike prices that Netflix rolled out so far:

Netflix's price hikes in the past
Figure 1 – Netflix’s price hikes in the past. Source: The Verge

After the news broke, I saw a lot of people on Twitter bullish about Netflix’s outlook. The rationale is simple: if your customers are sticking with you AFTER you raise prices, it means you have a great business. The key underlying assumption is that Netflix viewers won’t churn or, in other words, leave. To back up this assumption, these bulls provided a chart from Antenna which allegedly shows Netflix has the lowest churn among premium streamers.

Netflix's alleged churn rate against competitors'
Figure 2: Netflix’s alleged churn rate against competitors’. Source: Antenna

The problem is that when your entire thesis is based on a chart, you have to make sure the data is trustworthy. Unfortunately, I find Antenna’s data confusing and ambiguous for three reasons. The first reason is that there is no methodology or explanation of how they acquired this data. Take the churn chart above as an example. What does weighted average churn rate mean? What is churn weighted against? What does passive churn mean? Did they survey users or did they base this chart on credit card usage data? If it’s survey-based, how big is the survey pool and is it representative of the U.S? Plenty of questions with zero answer.

Furthermore, Antenna’s charts seem to contradict one another. While they indicate that Netflix has the most loyalty among streamers, somehow Netflix’s market share in terms of subscribers has been declining for the past few quarters. How does that happen? If Netflix’s churn was lower than that of its competitors, the company’s market share should stay the same at the very least or go up. Some may argue that Antenna may favor other streamers in a sense that if one person subscribes to both Netflix and another service, the other service will claim this subscription. Well, this argument brings us back to my first issue mentioned above: no methodology! How do we know if this argument is true?

The last issue I have with Antenna is the inconsistency of the reported data. In Q2 2021, Antenna claimed that Netflix has a market share of 29% (Figure 4). However, in their latest report for Q3 2021, Netflix’s share declined to 30% from 32% in Q2 2021 (Figure 5) . The two reports seemingly have the same methodology and feature the same number of streamers as well as the composition. My question is: what changed? How did Netflix’s Q2 2021 share go to 29% in one report to 32% in another?

These issues really call into question the assumption that Netflix’s churn is lower than its competitors.

But for the sake of argument, let’s assume that Antenna data is correct. That also means Netflix’s market share has been declining gradually. The 4-quarter rolling average net adds for US and Canada has gone down significantly since Q4 2020. Yes, Covid-19 pulled forward subscribers, but that also signals as many in the U.S are vaccinated, the macro environment is no longer favorable to Netflix as it was at the onset of the pandemic. When the number of new adds decreased despite all new releases in 2021, why does management think it’s a good idea to raise prices? Do they have any tricks up their sleeve? Or is the new price hike aimed at increasing revenue with the hope that subscribers will stay regardless?

I don’t know at this point whether this is a good strategic move for Netflix. I guess we’ll have more information this Thursday when they hold their earnings call. What I do know is that I don’t share the bullishness that many fans of Netflix stocks quickly showed after the price hike was announced. We just don’t have enough reliable information.

Netflix's 4-quarter rolling average net subscriber adds for U.S and Canada
Figure 3: Netflix’s 4-quarter rolling average net subscriber adds for U.S and Canada
Figure 4: U.S Premium SVOD Share of Subscriptions. Source: Antenna
Figure 4: U.S Premium SVOD Share of Subscriptions. Source: Antenna

Square Online’s on-demand delivery

On Wednesday 1/12/2021, Square announced a new partnership that will enable Square Online orders in Canada to be delivered by DoorDash Drive. The new service in Canada is an extension of what Square launched in the U.S before. This is how it works: after a Square Online merchant receives an order, a DoorDash/Uber Eats courier (depending on whether you live in the U.S or Canada) will come to the merchant’s location, pick up the order and bring it to the customer. The customer can track the order through a link sent in a text message by Square. All orders with on-demand delivery will be commission-free. For every order, merchants will only pay a dispatch fee of $1.5 and a processing fee of $3.6 to Square.

Square on-demand delivery
Square on-demand delivery. Source: Square

At a closer look, the service is interesting to me. The sales pitch merchants will hear is very simple: work with us, become our merchant and you won’t have to waste valuable dollars on delivery staff or those expensive marketplaces with high commissions. A saving of $11 on every $50 order is highly attractive, but it’s not the whole story for merchants. Even though Square Online is free, anyone serious about operating a business will certainly need to upgrade to a higher tier. Who wants to build a brand with a “square.site” in their domain? Even a nobody like myself tries to secure a custom domain. To use a custom URL, merchants need at least a Professional plan at $12/month. Additionally, merchants can only enable PayPal checkout, product reviews or gift options with a Performance plan, which costs $26/month. Want advanced eCommerce stats regarding product performance or sales trend? Pay $72/month for the highest tier then. For Square, this means high-margin & recurring subscription revenue. For merchants, they need to think about what they may get themselves into.

Merchants must also be aware that using this on-demand delivery service with Square is different from being on Uber or DoorDash app. These marketplace apps are household names and likely bring more sales. That’s their primary value proposition. That’s how they can charge a commission of 30% per order. Since orders must be from merchants’ online stores, the task of generating sales and marketing now falls onto merchants who will have to choose between a bigger piece of a smaller pie and a smaller piece of a bigger pie. One thing that I have to say, though, is that by having customers place orders directly online, sellers can establish a precious relationship with customers, instead of ceding it to the likes of Uber or DoorDash.

Square Online pricing tiers
Square Online pricing tiers. Source: Square

What also interest me is the low dispatch fee. For every DoorDash Drive order, merchants normally pay a flat fee of $8. In this case, the dispatch fee is only $1.5. As the market leader in food delivery, DoorDash certainly has the bargaining power that they would not bend over backwards to work with Square at all costs. A drop of 81% in dispatch fees is massive, affecting DoorDash’s top and bottom line. Hence, I believe Square must compensate their partner in this agreement and make up for some of that loss. The question is: do the numbers add up for Square? It’s worth pointing out that a DoorDash Drive flat fee of $8 includes DoorDash’s standard processing fee of 2.9% + $0.3 per order. In other words, a normal $50 DoorDash Drive order will result in a processing fee of $1.75 and a dispatch fee of $6.25. A cut of $1.5 per order from Square on-demand delivery means DoorDash will lose about $4.75 per order in revenue. Let’s assume Square compensates DoorDash $3 on every order with on-demand delivery. 1,000 such orders per month (around 3 per day) for 1,000 merchants would put a dent of $3 million on Square’s financials. Square claimed to have millions of sellers. A wide adoption of this on-demand delivery service wouldn’t be financially tenable. How does Square make this work?

My hunch is that Square’s target audience for this service is small, to begin with. Any merchant wishing to use this on-demand delivery service must have a Square Online store. We can exclude medium and large-sized merchants from this population as they must already handle their online activity. Those that are in need for Square Online should be mom-and-pop or local restaurants that do not have a website or really need an upgrade and a delivery service. This market segment should be small enough for Square to offer this service and make the numbers work. I suspect that the company wants to use this offering as an opening to get these merchants to install Square POS in stores. Once Square successfully has its POS installed, the more orders merchants have, the more revenue Square generates. What intrigues me is what Square would do if merchants had too many on-demand delivery orders? Would Square terminate the service or start charging more?

This service from Square offers great benefits to small merchants and really differentiates the company from its rivals like PayPal. I don’t have access to their financials and breakdown on this specific service, but my guess is that because the target audience is very small to begin with, it won’t move the needle much. Is this a threat to Olo? I don’t think it is. Olo’s bread and butter at the moment is franchises with multiple locations. Their business doesn’t hinge on who powers merchant’s websites. What matters is that Olo offers a centralized system helping merchants deal with the likes of Uber, GrubHub and DoorDash efficiently. Square’s on-demand delivery requires that merchants have to build online presence with Square. It’s a different game.

State of Mobile 2022

App Annie released a report named State of Mobile 2022, offering a comprehensive view on the app economy around the world. The report is very informative with lots of data and I really recommend you have a look, but there are a couple of things that make me hesitant to draw any lesson:

  • Hours spent on app is only on Android devices; which doesn’t provide a complete picture of app usage as iOS is a huge ecosystem
  • I couldn’t find the definition of breakout downloads anywhere in the report. What does breakout even mean?
  • We need to be careful about the number of downloads. I suspect these downloads needed to be in 2021 to be included in this report. That means some popular apps that are on consumer phones before 2021 aren’t. Hence, the number of downloads in 2021 doesn’t paint a true picture of how popular apps are

With that being said, here are some takeaways in which I have some confidence.

Total App Spend in 2021 was $170 billion, implying iOS’ has a market share of 35-40%

App Annie estimated that the total app spend in 2021 at $170 billion. On Monday, Apple revealed that they paid $60 billion to developers in 2021 which didn’t include Apple’s commissions. If we assume that Apple takes 15% on every dollar, the total app spend on the App Store would be around $70 billion ~ 40% of the figure that App Annie reported.

Though their population isn’t too far off from each other, China had much more app downloads in 2021 than India

China has approximately 1.4 billion people in population, 20 million more than what India has. However, the number of app downloads in China easily dwarfs that in India and the rest of the world. I wonder if it’s because folks in China cycle their phones more often so that the number of downloads was high even though the number of users didn’t necessarily increase. On a side note, shout out to Vietnam with more than 3 billion downloads for a country with 97 million people.

LinkedIn was frequently searched on the App Store, signaling a vibrant job market

Zoom, Teams and LinkedIn are in the top most searched keywords on the App Store. That’s heartening for Zoom and Microsoft investors because this signals their brand awareness among users. The fact that LinkedIn is among this group signals to me that folks want to update their profile and look for job opportunities. Why else would you look for the LinkedIn app?

45% of markets where Disney+ is available have over 1 million downloads in total. The figure for Netflix is 31%

According to App Annie, there are 24 countries where the number of total downloads for Disney+ exceeded 1 million while there are 58 such countries for Netflix. However, it’s really important to remember that Disney+ is only available in 53 markets whereas Netflix can be downloaded in more than 190. Hence, you can see Disney+ tends to be really popular wherever it’s available.

Amazon through charts

Amazon’s revenue growth slowed down significantly in the last 6 months after being pulled forward by Covid-19; which may explain the timid growth of their stock price

Amazon's revenue growth

AWS is now a $56 billion annual run-rate business. This run-rate is actually based on real figures

Quarterly revenue of Norther America, International and AWS

AWS continues to be the margin machine for Amazon. International went back to the red after 5 quarters in the black

Segment and total operating margin

Advertising is Amazon’s 4th biggest revenue stream

Amazon's business segments' revenue

Advertising, AWS and Subscriptions are the top 3 growing segments of the company

Segments' revenue growth

Amazon has been investing heavily in the last 6 months, hurting their Free Cash Flow

Amazon's free cash flow trailing twelve months

Shipping costs as % of Online Stores & 3rd-party Marketplace have been increasing. The shipping cost can make it difficult for competition to catch up

Amazon's shipping costs

Amazon’s impact on American third party sellers during holiday seasons

Because of its reach and established brand in consumer minds, Amazon is a great channel for American sellers. Today, let’s take a look at the impact that Amazon has on these sellers during holiday seasons. This is by no means an easy task because Amazon offers data on a piecemeal basis and there is no standard definition of a holiday season. The lack of consistent reporting, the changing macro environments, seasonality and the different length of holiday seasons make it almost impossible to have a definitive view on how much American 3rd-party sellers grow their businesses on Amazon year over year. Nonetheless, below is my best estimate. Let’s go!

In 12 months between September 2020 and 2021, American 3rd-party sellers averaged 7,500 products sold per minute on Amazon and there are more than 500,000 of such sellers on the platform. A few days ago, Amazon reported that these sellers sold 11,500 products per minute between Black Friday and Christmas. That’s an increase of more than 50% compared to the non-holiday period. This sort of growth is what makes Amazon an irresistible channel for sellers, especially small ones.

At the end of 2020, Amazon reported that there were nearly 1 billion products sold by U.S-based sellers on its platform during the 2020 holiday season. That year, Amazon started the holiday season early in October right after Prime Day. How did 2021 fare compared to 2020? Let’s do some maths.

As sellers averaged 11,500 products per minute during the 30 day period from 11/26/2021 through 12/25/2021, it means that there were in total 496,800 products sold. From 10/4/2020 through 11/30/2020, which was Cyber Monday that year, U.S-based sellers averaged 9,500 products sold per minute, an equivalent of 793,400,000 items in total. Like 2020, the 2021 holiday season was also kicked off in early October. Assuming that the sales figures from 10/4/2021 through 11/30/2021 were about the same as the same period the year prior, U.S 3rd-party sellers would sell approximately almost 1.3 billion items in total for the whole season. Compared to the 1 billion figure in 2020, that means American sellers sold 30% more items on Amazon in 2021 than the year prior. A tremendous achievement at that scale.

Estimated Amazon 2021 holiday season sales
Estimated Amazon 2021 holiday season sales

In short, Amazon is still a great channel for American sellers, evidenced by a massive number of products sold during the holiday seasons and the estimated growth even at scale. Some critics often say that Amazon is no longer operating with the Day 1 mindset. It is debatable and in some aspects, they may have a point. But in this regard, I don’t see a slowed-down Amazon. I see an Amazon that is still growing impressively.

Disclaimer: I own Amazon stocks in my portfolio.

Super Apps

In this post, I’ll touch upon briefly the definition of a Super App, give a few examples and talk about the business implications of these apps.

The term Super Apps is generally credited to Mike Lazaridi, the founder of Blackberry, who defined it as “a closed ecosystem of many apps that people would use every day because they offer such a seamless, integrated, contextualized and efficient experience”. In laymen’s terms, a Super App is an application that offers various services on one interface. While the mix of services offered by Super Apps varies from one to another, the common denominators of these apps are 1/ they are all two-sided networks popular with both merchants and consumers and 2/ they all began their journey by being excellent in one function before branching out to others. Merchants need to have access to a lot of consumers to join a network while consumers only find the network useful when there is a lot of utility, namely plenty of merchants. The chicken and egg problem of a two-sided network is hard. Therefore, the singular focus on a vertical in the beginning makes sense as start-ups can’t afford to solve this issue in multiple verticals. No-one can build a Super App right from the get-go. Once an app excels and makes a name for itself in a vertical, why not leveraging existing traffic and offering users more reasons to stick around longer?

Examples of Super Apps

WeChat

WeChat started out as a messenger app. An engineer named Allen Zhang alerted his employer Tencent on a threat of other competitors taking away its market share and app engagement. To stay competitive, WeChat transformed itself into an app on which users could do everyday things on a single interface including payments, social media, e-commerce, doctor appointments, hotel reservation or ride-hailing. The pivot was a hit as the new services surpassed even the apps that inspired WeChat in the first place. 

Facebook

Facebook and its founding story need little introduction. Over the years, Facebook has added several services to make itself stickier as a platform. Nowadays, users can shop on a marketplace or Facebook-native stores; create new connections with Facebook’s own Tinder version; make payments with Facebook Pay or consume exclusive content from creators. With its ambition and virtually limitless resources, it won’t be a surprise that Facebook or Meta will expand its offerings in the future.  

Grab

The title of grab.com reads “Grab: The Everyday Everything App”. Its status as one of the biggest Super Apps in Southeast Asia is so different from its humble beginning. Grab was founded as a taxi-hailing business in Malaysia in 2012 by two Harvard graduates. The company gradually expanded into other areas, such as other modes of ride-hailing, food delivery & nonfood delivery, travel bookings, bill payment and financial services. In Vietnam, almost everyone in big cities uses Grab for daily tasks from food delivery, ride-sharing or bill payments.

What Grab mobile app looks like in Vietnam
Figure 1 – What Grab mobile app looks like in Vietnam

Uber

Uber was founded in 2009 by Travis Kalanick and Garrett Camp as a ride-hailing alternative to taxies. The company’s meteoric rise saw it become a global phenomenon, but the company today is more than just a ride-hailing app. In 2014, Uber launched a food delivery service called Uber Eats, which was later rebranded under Delivery. While Covid-19 decimated the Mobility segment (ride-sharing) as riders were restricted by stay-at-home orders, the pandemic was a catalyst for the transformation of Uber as a whole. Delivery has been growing substantially due to consumers ordering food and grocery deliveries. Its gross bookings have repeatedly surpassed Mobility’s and now reaches Mobility’s pre-pandemic level. Second, the company has made strategic acquisitions to expand beyond food delivery. In June 2020, Uber acquired Cornership, a popular grocery delivery service in Latin America. A few months after, it added Postmates, which is very competitive in coastal cities and offers delivery-as-a-service for non-food items. In October 2021, Uber took over an alcohol delivery startup called Drizly. The company has been tinkering with marijuana delivery in Canada and waiting for the green light from the federal government before launching it in the U.S. Powered by the new capabilities, nonfood categories make up around 5-6% of Uber’s overall gross bookings and are expected to grow more in the future. Uber’s ambition is very simple: be the go-to app when consumers have a transportation need. 

PayPal

PayPal first made a name for itself by being a secure digital wallet and online payment system, especially as the primary checkout option on eBay. Since its spin-off from eBay in 2014, the company has added plenty of services to its mobile app and become a formidable two-sided network, due to relentless acquisitions and product development. End users can access various services on the current PayPal app, including paycheck deposit, high-interest savings, bill payment, remittance, credit cards, debit cards, in-store & online payment, BNPL, PayPal Credit, P2P payment, shopping deals and investing. PayPal’s end goal is to be the go-to Financial app for its users.

PayPal's offerings to consumers and merchants
Figure 2 – PayPal’s offerings to consumers and merchants. Source: PayPal

Cash App

Cash App started out as a P2P payment app in which users could transfer funds to anybody in the U.S. Nowadays, users can pay for purchases in stores and online with Cash App debit card and Cash App Pay; invest in stocks and cryptocurrency; or make deposits into checking accounts. In November 2020, Square bought the tax filing division of Credit Karma and subsequently added to its flagship app the ability to file taxes and receive tax refunds. In August 2021, Square paid $29 billion for Afterpay, one of the major BNPL players in Australia and in the U.S. It’s just a matter of time before Cash App turns on BNPL for its users and merchants. Cash App’s ambition is similar to PayPal’s; which makes it interesting to see how the two compete in the future.

Pros and Cons of partnering with Super Apps

Merchants stand to gain an additional payment option as well as more sales from Super Apps, but the story isn’t all rosy. Too much reliance on Super Apps means that merchants’d risk ceding the control of direct customer relationships. In business, few things are more valuable than that. Take Apple and Amazon for instance. Apple’s customer base is so loyal and attached to their brand that almost all developers or other brands take the back seat in negotiations . Amazon’s scale and iron grip on the valuable Prime base allows them to dictate terms over merchants. When you buy from a merchant on Amazon, do you feel more related to the former or the latter?

For banks, Super Apps can have adverse impact in a couple of ways. First, services such as PayPal in 4, Afterpay, PayPal Credit or PayPal/Venmo credit cards can reduce issuers’ credit card spend and subsequently balance as well as revenue. Secondly, it’s in their interest to have users maintain an in-app balance and keep funds away from banks’ checking accounts. Think about it this way: would you feel more poised to use PayPal when your PayPal balance was $20 or $0? That’s why Venmo credits dormant users $10 for downloading and logging into the app again or why Square wants users to keep tax refunds in Cash App balance. The reduction in deposits can raise banks’ cost of funds as well as threaten to cut off the most fundamental relationship with customers. 

On the other hand, Super Apps present a battleground for financial institutions vying for wallet share. Once the connection between checking accounts or debit/credit cards and these Super Apps is established, users often don’t want to go through the inconvenience of updating their default payment method. Hence, every financial institution wants to be the primary source of funds for consumers on these Super Apps to have a leg up over the competition. In this sense, Super Apps offer a business opportunity.

In summary, as you can see above, there are multiple paths towards the Super App status, whether an app’s starting point is to be in messaging, digital wallets or ride-sharing. I think all successful consumer-facing apps have ambition to gain the Super App status. If not, they’d do something wrong. It’ll be interesting to see how these Super Apps compete for mindshare as feature parity is established (meaning they all offer similar features). For merchants, working with Super Apps can be a double-edged sword. While the benefits these apps bring are very tempting, merchants need to keep in mind the risk of losing customer relationships. Like people usually say: don’t miss the forest for the trees.