Along with its second-quarter results, Square (NYSE: SQ) announced the sale of its food delivery app, Caviar, to DoorDash for $410 million in cash and preferred stock. Square originally acquired Caviar for $90 million in 2014, but it's unclear how much it may have sunk into it while operating the service.
At the very least, however, selling Caviar provides Square with a good chunk of capital to reinvest and grow its business. In its letter to shareholders, management said, "This transaction allows us to increase our focus on and investment in our two large, growing ecosystems -- one for businesses and one for individuals."
Here are some areas investors can expect Square to explore with its new capital infusion.
Image source: Square.
On the business side
During Square's second-quarter earnings call, CEO Jack Dorsey specified the company will initially increase its investments in sales and marketing, as well as hardware.
Selling Caviar to DoorDash will allow Square to focus on serving restaurants and other food sellers its Square for Restaurants platform, as well as its Orders API. Square will no longer be offering both the platform (Square for Restaurants) and the sales channel (Caviar) for merchants, enabling it to sell with greater specificity. That should help make its marketing spend on restaurants more efficient.
Square already sees strong return on investment from its marketing. CFO Amrita Ahuja noted the company's payback period is still sitting close to three quarters even as it increases its marketing spend. Specifically, the company sees opportunities to advertise its entire ecosystem of products and services. That's where investments in new hardware could come into play as well.
Square has an opportunity to improve its services in both restaurants and retail, according to SunTrust Robinson Humphrey analyst Andrew Jeffrey. "Investments should bolster capabilities for large, inventory-intensive retailers where we believe it currently competes poorly," he wrote in a note upgrading the stock earlier this month. Indeed, offering more inventory management and multistore services could play into the Square ecosystem strategy.
On the individual side
Square's product for individuals is Cash App, which it disclosed brought in $135 million in adjusted revenue last quarter.
One of the biggest opportunities for Square to increase the revenue of the app is its Boosts feature. Boosts give discounts to Cash App users that use their connected Cash Card at specified merchants. Square foots the bill for nearly all of those discounts.