Square just bought Tidal for $ 300 million. here’s why
Financial services company Square (NYSE: SQ) announced on March 4 that it had acquired a controlling stake in Tidal for $ 297 million. If you didn’t already know, Tidal is a music streaming service founded by music mogul Jay-Z and other artists to bring exclusive, high-quality content to the digital age. The service never really caught on fire, but management is hoping that can change under Square’s umbrella.
But how does a music streaming service fit into a financial services and technology company? Let’s take a look and see if we can come up with some answers.
What Square gets
At first glance, it doesn’t look like Square is gaining much from the Tidal acquisition. The service has failed since its inception, with its temporary exclusive windows and premium audio quality never really resonating with mainstream consumers. At best, analysts estimate the company has 5% of the music streaming market, placing it far behind the market share of leaders in music streaming services. Spotify technology, Apple, and Amazon.
While Tidal doesn’t look like a big corporation on its own (it has lost money every year since its inception), it is owned by artists like Jay-Z who will keep some of their shares in Tidal as they go. that it will be absorbed by Square. Jay-Z is the only artist to play an active role at Square with a seat on its board of directors.
Why acquisition might work
After the acquisition, Square CEO Jack Dorsey tweeted some of the reasoning behind the deal. It seems that the thesis encompasses two main points.
One of the reasons was to strengthen the bond between artists and the Cash app, Square’s rapidly growing personal finance app. The app is huge within the hip-hop community, so having all of Tidal’s artist owners / partners logging in and promoting the Cash app could help attract more users to both services.
The second and most important reason for investors to consider is what Dorsey thinks Square can do for artists within its seller ecosystem. Like what Square has built for restaurants and small businesses, Dorsey thinks he can build with “Square for Artists” or whatever its name is. This could include an e-commerce platform, improving payments for live shows, or even funding creators. The idea is that whatever Square and Tidal decide to build will be aimed at helping artists get paid for their work.
What could go wrong
All of these ideas around a “Square for Artists” platform or other integrations with the Cash app sound great. But why does Square need to acquire Tidal to create one of these tools? From an outsider’s perspective, it just doesn’t seem like Square, which owns a music streaming service, is giving it that much head start when trying to create a financial platform for artists.
Plus, Tidal is reportedly losing $ 55 million a year. While not huge compared to Square’s financial situation, it will be a constant drag on profits unless they can do a full turnaround for the business. Don’t be surprised if in a few years Square completely shuts down the service, even if it does manage to develop its financial platform for artists.
Takeaway for investors
Overall, it looks like there is more to it than meets the eye with this Tidal acquisition. If Square can become the financial hub for musicians around the world, we might look back 10 years from now and think it was a fantastic deal. But at only 0.3% of the stock price market capitalization, even if the partnership ultimately fails, it will not materially harm Square’s business in the long run. So don’t worry if you don’t like the move and are a shareholder of Square – the company has bigger fish to fry.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.