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Block: The Stock Is Getting Increasingly Cheaper
Stock Analysis & Ideas

Block: The Stock Is Getting Increasingly Cheaper

Block Inc. (SQ), formerly named known as Square, is a diversified fintech company running an ecosystem of multiple services. Block’s primary business includes selling software and hardware infrastructure solutions for accepting card payments, especially to those for which such solutions were previously inaccessible.

Throughout the years, Block has rolled out a variety of solutions for merchants to thrive through innovative technology, attaining fantastic traction when it comes to expanding its user base and growing its revenues.

Block’s most valuable asset, Cash App, has recorded explosive revenue growth since it was introduced in 2013, now counting over 70 million monthly active users.

Despite Block’s revenues continuing to grow rapidly, quite impressively since integrating crypto in its Cash App ecosystem, shares have declined substantially lately. The general correction experienced by growth stocks has contributed to this decline as well, which in my view, has formed a buying opportunity for Block’s shares.

Block remains well-positioned to profit from the current macro tailwinds in the fintech industry. For this reason, I remain bullish on the stock.

Latest Results Were Great, Upcoming Results Will Also Be

Despite the ongoing investor concerns surrounding Block’s stock decline, the company has been posting robust results, while its upcoming earnings should also keep breaching towards new record highs.

Block’s Q3 results were once again very strong, with the company reaching $2.03 billion in revenues excluding Bitcoin, a gain of 45% year-over-year, or ~4% sequentially.

Including Bitcoin, revenues were $3.84 billion, a growth of 26.7% year-over-year. In fact, Cash App revenues expanded to $578 million, $485 million of which were gross profits. Impressively, this suggests a gross profit growth of 33%, as well as a steep margin expansion to 83%, as illustrated by the higher growth against CashApp’s total revenues.

Additionally, during Q3, Square launched Cash App Pay, allowing for a new commerce experience for Cash App users by linking Cash App and the company’s seller ecosystems.

Finally, note that Block’s sellers’ gross profit grew 48% year-over-year to $606 million during the period, and that was before the integration. Consequently, it makes sense to assume an acceleration in Block’s top line going forward from this integration alone.

Speaking of Block’s upcoming earnings, the company continuously supplements its ecosystem, unlocking multiple synergies and economies of scale potential. One strong catalyst for the company going forward is the Block’s soon-to-close Afterpay acquisition. The company is a global buy now, pay later platform with more than 16 million consumers and approximately 100,000 merchants as of its latest filings.

Following Afterpay’s integration into the rest of its ecosystem, Block expects to merge two related businesses towards what I refer to as the “super app” in the fintech industry. In my view, no other company would deliver a more comprehensive product and service for consumers and merchants alike in the current state of the market.

Another great development that the company announced recently is CashApp’s integration with Bitcoin’s Lightning Network, which should further grow the company’s crypto-based revenues.

Wall Street’s Take

Turning to Wall Street, Square has a Moderate Buy consensus rating, based on 17 Buys and six Holds assigned in the past three months. At $261.91, the average Block stock prediction suggests 106% upside potential.

Conclusion 

Block’s stock is trading at just around 3.4 times its estimated Fiscal Year 2021 sales, which is the shallow edge of its historical valuation multiple. Considering the company’s robust results and catalysts going forward, I have become increasingly bullish on the stock at its current levels following the recent decline.

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