XYZ: Accelerating U S Payment Volumes Will Drive Upside Momentum This Year

Block's analyst price target has increased modestly by $0.11, supported by improving profit outlooks and broadly positive research indicating accelerating growth and stronger U.S. market momentum.

Analyst Commentary

Recent Street research on Block reflects a mix of optimistic outlooks and ongoing areas of caution, as analysts assess the company's position in the evolving payments and fintech sector. The commentary highlights both accelerating fundamentals and the risks attached to business model shifts and market headwinds.

• Bullish analysts have been raising price targets based on accelerating payment volumes in the U.S. and stronger-than-expected gross profit growth, particularly within the Square and Cash App ecosystems.
• Market share gains for Square and expanding product momentum are noted as central drivers for anticipated continued outperformance. This is supported by positive management messaging and active investments in field sales and distribution.
• The company’s operating margins are expected to modestly improve over the mid-term. Upcoming Investor Day events may provide further clarity regarding Block’s sustainable profit trajectory.
• Following recent earnings beats and S&P 500 index inclusion, valuation multiples are viewed as having room to expand. This outlook is especially noted given the acceleration in gross payment volume and liquidity improvements.

• Bearish analysts remain cautious about guidance for upcoming quarters. They warn that tougher year-over-year comparisons after strong holiday spending could cap expectations and potentially limit upside.
• Concerns persist regarding the platform's exposure to credit losses linked to its lending products and the additional working capital required to maintain high lending growth rates.
• Increased dependence on lending within Cash App and continued debate about the sustainability of gross profit growth for Square may keep shares range-bound in the near term.
• The broader payments sector faces challenges from investor rotation to AI-focused stocks and instances of subpar execution. Analysts suggest that outperformance will require continued strong execution and differentiation.

What's in the News

• Square announced a comprehensive partnership with Grubhub, integrating Square's point-of-sale system and adding Cash App Pay as a payment option for Grubhub customers to simplify restaurant operations and expand payment flexibility.
• Square introduced Square Bitcoin, the industry's first fully integrated bitcoin payments and wallet solution for local businesses. This allows sellers to accept bitcoin payments with zero processing fees and manage their bitcoin alongside regular business finances.
• Katz's Delicatessen, a New York City culinary landmark, selected Square's platform to modernize operations and support growing nationwide delivery while preserving its authentic customer experience.
• Chip City Cookies partnered with Square to power its rapid coast-to-coast expansion. The company is streamlining operations with Square's all-in-one restaurant platform, performance insights, and loyalty program.
• Purdys Chocolatier rolled out Square across more than 80 retail locations in Canada, supporting faster checkouts and deeper customer engagement through integrated payment technology and marketing tools.

Valuation Changes

• Fair Value Estimate has risen slightly from $88.40 to $88.51, reflecting an improved profit outlook.
• Discount Rate has decreased marginally from 7.65% to 7.64%, indicating a modest reduction in the forecast risk premium.
• Revenue Growth projection remains unchanged at approximately 11.10% year-over-year.
• Net Profit Margin estimate has edged down from 7.21% to 7.13%, suggesting slightly tempered profitability expectations.
• Future P/E Ratio has increased moderately from 27.10x to 27.43x, implying a small uplift in the forward earnings multiple.