Stock Analysis & Ideas

Block Stock: Apple Could Bring More Downside

Shares of Jack Dorsey’s fintech empire Block (SQ) are down 57% over the past three months. Despite the jarring magnitude of the sell-off, SQ stock still seems expensive, at least from a price-to-earnings perspective.

With the recent unveiling of Apple’s (AAPL) Tap to Pay service, which essentially renders Square dongles obsolete, I would not be surprised if Block becomes the latest corporate victim of moves made by the largest technology company in the world.

I am neutral on the stock.

Apple’s Chopping Block?

Meta Platforms (FB) felt the pain of Apple’s previous iOS privacy update. The update could take $10 billion right off Facebook’s top line. Meta’s latest flop wasn’t solely due to Apple, but its update did cause many to question Facebook’s overreliance on targeted ads.

Meta had a wide range of other issues, such as metaverse spending, that pressured the stock, but it’s clear that Apple’s influence on other tech companies is considerable.

Like Meta, Block, formerly known as Square, had its own change of name and face. The company took a step back to consider the grander picture: blockchain technologies. Could the name change be a premature, even a distracting pivot as the company battles its biggest headwind to date?

The Square payments business pays a large chunk of the bills for Block. Cash App has been incredibly robust in recent years, with a lot in the way of future earnings growth potential.

In any case, it is my opinion that Square could be next on Apple’s chopping block. Whether or not Block suffers the same magnitude of Apple-induced revenue-deteriorating effect as Meta remains to be seen.

With Apple taking its fintech innovations to the next level with its hardware-free terminal technology, I do think that it’s hard to go bottom-fishing in Block stock at this juncture, even with such a painful crash now behind it.

Jack Dorsey’s Blockchain Ambitions

Jack Dorsey is an incredible CEO. Stepping away from Twitter (TWTR) to focus on Block is definitely a huge positive for the fintech firm as it looks to square off with Apple.

Dorsey likes what he sees in the blockchain, and he’s prepared to invest heavily in a technology that could hold the future of financial technology as we know it.

Bitcoin and blockchain are intriguing, but the real question is how will Dorsey and company turn its R&D into a new cash flow stream for Block?

It’s less clear than with Square’s PoS (Point of Sale) technologies in its earlier days. Although blockchain technology and Block’s forward-thinking projects are more abstract, possibly more so than the metaverse, I do think that such projects raise the stakes significantly.

Wall Street’s Take

According to TipRanks’ consensus analyst rating, SQ stock comes in as a Strong Buy. Out of 21 analyst ratings, there are 19 Buy recommendations and two Hold recommendations.

The average Block price target is $221.33, implying upside of 105.2%. Analyst price targets range from a low of $140 per share to a high of $322 per share.

Bottom Line on Block Stock

Is Block sitting at the forefront of the blockchain boom? Or is it pulling a “Meta” with the name change and shift of focus on new frontiers?

It’s hard to say, but there’s no denying that Block has a legendary leader in Dorsey at the helm. That alone, I believe, makes Block an intriguing analyst-approved speculative investment that I would never want to bet against, even in the face of increased competition.

That said, whenever you’ve got a smaller, more expensive company like Block against a cheaper, larger disruptor like Apple, the downside risks are incredibly high.

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