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At this year’s conference Investment Team member Ed Cowan interviewed Nick Molnar – Afterpay co-Founder – to give the audience an insight into one of HM1’s core holdings, Block (NYSE:SQ), which acquired AfterPay in 2021. Nick continues to be involved in Block post acquisition, leading the Sales and Marketing organisation across the entire Block ecosystem of Square, CashApp and AfterPay.

The interview dives into why Nick is still so incredibly motivated in his role at Block, the opportunity ahead for the business, insights into the enigmatic Jack Dorsey and much more!

Transcript

This Transcript is auto-generated, and may contain unintended errors.

Ed Cowan (00:33):

It’s an absolute privilege to have 15 minutes with one of Australia’s great technology founders. I think we all know about the US$29b acquisition of Afterpay by Square (now Block), but probably what most people don’t know is Nick is now running the sales and marketing organisation across the entire Block ecosystem. So that’s Square CashApp and of course, Nick’s baby, Afterpay.

Block’s become a little bit of a battleground stock for investors, and in the spirit of SOHN, I feel my duty to give a very quick mini pitch before the Q and A begins. Block reported last week, in fact, gross profit grew 19% in the quarter year on year, earnings are going to double in the next financial year.

It trades on 5x gross profit, 14x PE. A reminder, PayPal grows mid-single digits, also trades on 5x GP, and of course we have Australian banks that don’t know how to spell the word growth that trade on 15x. So this is a business that is cheap by every metric. In the next six to seven years. Block will probably produce free cash flow the equivalent of its current Enterprise Value. So if you like what you hear, it is a core holding of HM1. Nick, you’re the star of the show. I’m going to shut up and ask a couple of questions. Thanks for joining us.

Maybe let’s go back in time quickly back to when Afterpay was acquired by Square. What was the rationale in your mind? What was the opportunity for Afterpay to sit inside this Block ecosystem?

Nick Molnar (02:39):

Yeah, thank you so much for having me. When we first started the conversations with Block, what became really clear was two things from my perspective. The first was the immense opportunity that existed within Block if it could connect two sides of its own ecosystem in its own business being Square and CashApp. And it felt like Ant and I had really kind of done that dash in building Afterpay and building a true two-sided network. And so we could just see the dynamics at play, see how you could bring consumers into sellers and drive foot traffic and business to them and lean on those sellers to drive customer acquisition for the consumer side of the business. And so I believed in that thesis. And then secondly, what we really believed was that particularly in CashApp, which has 57 million monthly active consumers in the US market, we believed that there was a strong opportunity to bring Afterpay into that brand and into that app and ecosystem. And ultimately the consumer scale would be one of the primary drivers of growth if we looked forward the next medium term. And you’re starting to see that consumer side of the pay in for market start to prevail. And we’re still definitely at the early stages of bringing Afterpay and CashApp together, but I am as bullish as I was when the deal was announced, been a lot of hard work. Integrating two companies together was not easy under any stretch of the imagination, but now we’re firmly focused on execution. Feels fun

Ed Cowan (04:38):

And certainly a bit easier given both share a common mission around economic empowerment. Maybe just to play on that theme a little bit, how is that opportunity or thesis as you call it, playing out today?

Nick Molnar (04:54):

Yeah, so we’re coming up on three years, be three years in January since we joined forces with Block. First period of time was really about integrating the teams together into a single organisation structure and embedding Afterpay into the CashApp framework and well in motion from that perspective all is a checked and we’re operating as part of Block now. So I moved from my primary remit being running Afterpay to running the sales function and then still leaning in on the Afterpay matrix and the p and l and then really set in motion how are we going to execute this strategy of Afterpay showing up within CashApp? How can we build it in a way that’s properly native and organic? What a lot of people well don’t know is kind of the scale of the CashApp card, 24 million monthly active CashApp card consumers now in the US market.

So I think it’s about 40% of monthly active have the debit card, one of the largest debit card programmes in the us. And so now the focus has been how are we going to bring Afterpay onto the CashApp card and how are we going to really bring these brands and these ecosystems closer together where we can play to the strength of both networks. And so still not in market to the extent that we would desire, but I think all the building blocks are there for us to really get after executing the strategy in due course.

Ed Cowan (06:41):

It’s awesome to hear you so fired up about the opportunity, one of the few people in the world who could genuinely choose to do anything with their time and yet you choose to stay in the weeds as an operator and grow this business maybe just leaning into this new role leading the sales or what are the top priorities on your mind? What’s on the to-do list in the immediate term?

Nick Molnar (07:06):

My wife has asked me that question that you just said, and actually I get asked at it like many of the all hands and if I don’t want to show up to work with the same intensity that I showed up at Afterpay, I should stop working. But the progress that we’ve made over what in hindsight is a pretty short period of time, but when you’re going through it probably feels longer than is the reality has been fantastic. And to see Block move from a functional org structure where you had a CashApp business unit and a Square business unit to a functional org structure that’s running both brands, I think it really illustrates the desire to realise this ecosystem strategy that Jack speaks about often and the fact that Block is on both sides of the counter being the seller side and the consumer side. It’s dealing with millions of sellers and tens of millions of consumers and it has such a diversified set of assets within its portfolio. It’s like a playground that you can kind of dream of and to work with the rest of Jack’s direct reports who in my honest opinion are just masters of their craft is a real privilege. And so it feels like the right structure set up the right authority and direction is kind of in place now. It’s about execution and really breaking down those barriers that used to exist from a business unit perspective and realising the synergetic opportunity, not just between Afterpay and CashApp, but just the broader Block universe.

Ed Cowan (08:52):

You talked about Jack there referring to Jack Dorsey, it’s fair to say he’s a little bit of an enigma. Not many people in this room know him or have any insight into his character. There’s a certain outside in view, I guess maybe you can take us inside the room, what’s he like as an operator, as a leader, and particularly your relationship with him, this dynamic of two great founders, but that there are clear reporting lines.

Nick Molnar (09:21):

Yeah, look, Jack is a true visionary. I think there aren’t many people you meet that can legitimately see the future and you can hand on heart believe that that is Jack and his experience and what he’s achieved is just a clear illustration of that. It’s pretty special to being still a founder led business. I think that’s really important to me. And I think, I’ve never asked him the question, but my feeling is there’s kind of mutual respect of what it represents to be a founder. And in many ways I think all of his direct reports, he kind of treats with that entrepreneurial spirit and he sets the direction and he sets the accountability and the criteria of what success looks like, but then he lets you operate. And so how he assembled this team, how that team’s come together as a unit and then how he steers the ship that gives the authority and responsibility down within the business for me personally is a massive plus. I think a big reason why I’m as excited as I am.

Ed Cowan (10:29):

Can you give a little bit more flavour as to how that gels with you as a leader in your own leadership style?

Nick Molnar (10:37):

Yeah. Look, a lot of this was well tested when Ant and I were co-CEOs in a way we would figure out what our lanes were and we would separate conquer with deep trust in each other and deep alignment in one another. And so part of it’s just how do you set a really clear plan and how do you then prove that you deserve the resolute accountability for it. But we try and function in the same way within our business. We’ve been fortunate to hire some of the best people in the world into Afterpay. I think Afterpay success was a lot about the quality of people we were able to bring in at times when we didn’t deserve for them to join our organisation and everyone punched well above their weight. And so yeah, it feels like definitely the cultures between Afterpay and the broader Block universe are very similar and it starts with leadership.

Ed Cowan (11:42):

And the last question from me relates to a little forward looking statement, so to speak. So you might need to be careful, but five years time, if you look back on the success of Block, what are the key things that you think you are going to look back on with pride as to the work that you’re doing?

Nick Molnar (12:05):

Yeah, I mean, look, there’s a natural reality that Afterpay is very close to my heart. And so when you pick a home for, you referenced it as my baby. When you pick a new home and you accept what that means, what you want is that it achieves its full potential as a function of the decision that you made. And it feels like that vision is coming to life. So first and foremost, I’m excited for paying forward to continue to scale across the world and to be the next generation of how this younger consumer, well, not so young anymore because millennials are in their mid thirties, but how this next generation consumer spends their money. And then from a Block perspective, I just think the competitive advantage sits in how well both sides of the ecosystem connect with one another. And you’ve got network effects prevailing in each brand in its own right, but if they can be connected and fueling the other side of the equation, that’s where I think the next spin of the flywheel and the next network effect prevails. And so they’re the two things that I believe in and I’m focused on.

Ed Cowan (13:21):

That’s awesome. Personally, as a current shareholder and hopefully there are lots of shareholders here from HM1, thank you so much for your time. Out of a busy day, I get fired up listening to hear you talk about the business. So thank you Nick Molnar.

Nick Molnar (13:37):

Thank you everyone. Thanks for having me.