SQ Stock Overview
Block, Inc., together with its subsidiaries, creates tools that enables sellers to accept card payments and provides reporting and analytics, and next-day settlement.
Block, Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$54.99|
|52 Week High||US$270.16|
|52 Week Low||US$53.90|
|1 Month Change||-20.20%|
|3 Month Change||-13.94%|
|1 Year Change||-77.02%|
|3 Year Change||-12.23%|
|5 Year Change||78.77%|
|Change since IPO||320.74%|
Recent News & Updates
Block rolls out Tap to Pay on iPhone on iOs app to all U.S. sellers
Block's (NYSE:SQ) Square rolled out Tap to Pay on iPhone to millions of sellers in the U.S. within its Point of Sale iOS app on Wednesday, allowing sellers to accept contactless payments directly form their iPhone. Any Square merchant with a compatible iPhone can accept contactless payments by opening the Square POS app, ringing up the sale, and presenting their iPhone to the buyer. The buyer completes the payment by tapping a contactless payment method such as Apple Pay, another digital wallet, or a contactless credit or debit card. Block (SQ) shares have risen 1.7% in early Wednesday trading. Apple (AAPL) unveiled its Tap to Pay in February 2022, letting small business take credit card payments through their iPhones. The full-scale introduction followed its early access program for Tap to Pay on iPhone, which started in June.
Block: I Revisit This Holding, But I'm Not Bullish
Summary As we enter a new economic period, I don't believe that Block's growth prospects will stabilize over the coming quarters. I explain that I was forced to make a difficult decision and sell my holding, back in March. Why making that difficult decision was clearly the right decision. I believe that in the near term Block will continue to be under selling pressure due to non-fundamental reasons. I discuss the impact of Block's BNPL venture, by highlighting some positive and negative considerations. Here I argue that investors' expectations of Block are still too high. And investors should not buy this dip. Investment Thesis Block (SQ) has seen its share price melt away as investors turn their focus away from ''growth at any cost'' businesses and now demand stability, visibility, and profitability before investing. While for its part, Block continues to double down on its Afterpay growth strategy and will seek to invest through macro headwinds, as it strives to outcompete others in the BNPL space to gain market share with both consumers and businesses. Block wants to be the chosen payment solution for customers as it continues to grow its products to keep users engaged with its offerings. However, I struggle to get comfortable with its valuation as Block enters this new economic period marked by slower growth. Don't buy this dip. Making Really Difficult Decisions Back in March 2022, I said to Deep Value Returns members that I was being forced into a corner. That I needed to remove from the portfolio Block and other similar holdings. I made the argument at the time that the war in Ukraine was going to have a substantial knock-on impact that the markets weren't yet awake to. I then made this commentary available, for free, a month later. I wrote, Why I Went From Tech into Commodities and You Should Too, Part 1 and Part 2, and you can read why I decided that moving away from the likes of Block was the right decision. The core of those pieces was around the fact that ''it's nearly inevitable that Europe is going to go into a recession this year'' and the ramifications that would have on the US market. Exiting my Block holding was such a difficult decision to make. It would have been a much easier path to follow for me to continue to stay the course and endlessly argue for a strategy of commitment and consistency. To always buy the dip, that the market ''wasn't getting it''. In hindsight, this is the lesson I learned. Being too early to realize something is the same as being wrong. After I made that call, Block would rally 50% in under 15 days! But what about now? Today the stock is down substantially from that point when I called it a day. So what's on offer now? Gross Profit Growth Rates Could Stabilize SQ Gross Profits Growth Rates Block's gross profits are now coming in lower than 40% CAGR. Yes, Block did have really difficult comparisons with the prior year. And logically, one would expect that H2 2022 should be an easier comparative period for Block. But I don't believe that will be the case. With rising interest rates and inflation still high, I believe that we could reasonably expect Block's gross profit rates to stay at 30% CAGR or even slightly less. One way or another, Block is no longer in hyper-growth mode. What Will Block's BNPL Venture Bring? Let's get some context. Block's BNPL business brought in $150 million of gross profits in Q2 2022. That's approximately 10% of its consolidated gross profits. Now, for this contribution, investors are having to deploy approximately 30% of Block's market cap or 0.375 shares of Block for every share Afterpay. So after the BNPL business gets fully integrated, Block has to think about what's next. The period of easy money has now come to an end. And we are now entering a period of slowing economic growth. What's more, today there's a lot more competition in the BNPL space. Even more than there was at the start of this year. The likes of Affirm (AFRM) and PayPal (PYPL) are incredibly motivated to make their own product the default product. In fact, it should be noted that PayPal is looking to leverage its BNPL product, Pay in 4, to its more than 430 million active accounts. Incidentally, PayPal believes ''Checkout is the PayPal as search is to Google''. And while many may argue that is hyperbole, the fact remains that PayPal is already going to make $5 billion of free cash flow this year. That means that PayPal can self-fund its BNPL business, giving it plenty of firepower to be aggressive in gaining mindshare. While for its part, I believe Block in the absolute best case will only be able to deploy around $2 to $3 billion from its balance sheet, before its $4 billion of debt restricts its progress. On yet the other hand, one could make the claim that Block's BNPL could thrive as it looks to cross-sell into both its merchant and consumer ecosystem. And that could be an advantage for block given that its product offerings are familiar to both businesses and consumers already. SQ Stock Valuation -- Really Difficult to Find Fair Value The difficulty in finding Block's intrinsic value stems from the fact that it's really challenging to know what its normalized gross profit growth rates will be in a period of a slowing economic backdrop. Indeed, as we look back to 2020-2021, there was so much easy money, that Block had no difficulty in rapidly growing. But that macro backdrop is evidently very different today. What's more, Block is up against really tough comparisons with the previous year. And that's something that Block is aware of and that's why it consistently remarks that investors should look at a 2-year and 3-year CAGR to base their opinions. And the reason why Block does that is that is acknowledges that it did pull forward and benefit during the pandemic period. Again, let's compare this back to PayPal. PayPal is going to make around $5 billion of free cash flow this year and it's being priced at around 25x this year's free cash flows.
Block: A New Revenue Stream Makes Me Want To Add To My Position
Summary I have not added to my Block position for a while and I explain why. With the plans management explained in the earnings call, I'm willing to add again, albeit little by little. There are quite a few things to know about Block and headlines will mask what is really going on under the surface. The acquisition of Afterpay is more and more looking like a really interesting one and could take Square in a totally new direction again. Afterpay may be the missing link between the two ecosystems and bring in ad revenue over time. Introduction Months ago, I put Block (SQ) on the Stock In Isolation list for the subscribers of my marketplace Potential Multibaggers, meaning I don't add to the position. The reason is that I expected a big impairment from the Afterpay acquisition. The company was bought in an all-stock deal and as Block's stock has gone down so much, it seems unavoidable that the company does not account for a big impairment. This is not a big problem as such, it just means the circumstances have changed. It has no influence on cash or anything else but accounting, but algorithms and short-term-oriented investors pick it up and can severely punish the stock. The acquisition is still referred to as the $29B acquisition, but as Square paid with its shares and those went down a lot (just like those of Afterpay), the real price was much lower. That $29 billion is based on the price of Block's shares the date the deal was announced. Afterpay shareholders 0.375 shares of Square for every Afterpay share they owned. With about 290M shares outstanding and the closing of the deal on January 31, the valuation was only around $13B, based on Block's stock price of around $122. That's because not the price was fixed, but the number of shares was. There was amortization already in this quarter. $36M came from Bitcoin losses, $17M from "deal and integration-related expenses" and $42M from Afterpay-related expenses. There was also a $66M non-recurrent stock-based compensation. There was also a $31M amortization of acquired intangible assets. On the positive side, there was a $50M revaluation of equity investments. One of the things that I wanted to explore with this article is if this is already priced into the stock price of Block. After all, the stock is down more than 75% from its high. SQ data by YChartsIn other words, does Block deserve to be removed from the 'In Isolation' list? And I think the answer is yes. Read on to find out why. The Q2 2022 results The company posted revenue of $4.41B for the second quarter of 2022, down 5.8% YoY but beating the estimates by $80M. Don't worry too much about the YoY drop in revenue. The company has to report revenue including Bitcoin. It asked for an exception at the time from the SEC, as Bitcoin is not a real part of the company's revenue. Square (the name at the time) wanted to only include the margin it took on Bitcoin (which is very low) in revenue, but the SEC didn't authorize the exception. On top of that, Block has acquired Afterpay, which makes comparing even more difficult. Therefore, this sentence from the Q2 2022 shareholder letter states much clearer how the company does on the revenue side: Excluding bitcoin and our BNPL platform, Cash App revenue was $732 million, up 21% year over year and 76% on a three-year CAGR basis. I think that this was good, against very tough comps. Of course, this is just Cash App, not Square, the sellers' side. BNPL stands for buy-now-pay-later, Afterpay in other words. The non-GAAP EPS came in at $0.18 beating the consensus by $0.02. Another beat, in other words. GAAP operating loss came in at -$208M. Quite a bit of that was related to the acquisition of Afterpay. If you acquire such a company, you must write off the intellectual property. That, extra integration costs and the impact of Bitcoin on Block's balance sheet already slash the loss in two. The rest is in stock-based compensation, of which quite a bit has to do with the acquisition as well and is, therefore, not for the long term. You should probably expect operating costs to be quite high going forward in the next few quarters, though. Another important number for Block is GPV or Gross Payment Volume, all the money that flows through its system. For Q2, that was $52.5B, up 23% YoY and another testament to the fundamentally strong numbers of revenue growth. It's very important for Block that you don't look at the headline numbers, as they can be very misleading. Bitcoin has a very high degree of influence on the revenue side and bitcoin revenue was down 34% YoY. In reality, Bitcoin is not that important for Block, as it is merely a way to get investors on its platform. But traders will trade it along with bitcoin. The company itself likes to highlight gross profits. This is how the shareholder letter starts (not even with an introduction). Block Q2 2022 shareholder letter Here again, you see the same consistent growth. If you look at Square (the business payments and services part of Block) there was a gross profit of $755M, up 29% but Afterpay contributed there. Without the BNPL platform, it would have been +16% YoY. Cash App saw a gross profit of $705M, up 29% or 15% YoY without Afterpay. Maybe not earth-shattering but solid on very tough comps. Bottom line: please, ignore that 5.8% revenue drop that the headline numbers show you. Afterpay is now fully integrated and it contributed $208M in revenue and $150M in gross profit, which I think is pretty good. As Block paid the acquisition with a fixed number of shares and both stocks were down quite a bit before the acquisition closed, AfterPay 'only' cost about $14B instead of the original $28B. That helps a bit with the size of the impairments, of course. With $150M in gross profit, you could say that Block paid about 23 times annualized gross profits for Afterpay. Not cheap at all, but it's still growing fast. This brings Block's trailing twelve months' gross profit to more than $5B. SQ Gross Profit ((TTM)) data by YChartsIf you quadruple the Q2 2022 gross profit, you get $6B and then you even exclude Q4, which usually has a higher volume due to the holiday sales. With a current market cap of just above $40B, Block now trades at a TTM gross profit/market cap multiple of 8 and lower than 7 for the next 12 months. That looks attractive to me. Of course, Block has a big exposure to SMBs (small and middle-sized businesses), which makes many much more short-term-oriented investors weary, as they are afraid of a deep recession. I understand that but any recession will be short-lived. The average recession only lasts 17 months. For a long-term investor that doesn't sound too bad. Despite the serious headwinds in the last two quarters (just check how many companies blamed macroeconomic factors for lackluster growth in this quarter) Block keeps performing well if you scratch away the headline numbers. Some earnings highlights I'm not going through all the details in this article, but I wanted to point out a few things. 1. Square for Restaurant was an important driver of revenue growth. Gross Payment Volume from Square for Restaurant sellers more than doubled YoY. They used an average of 4 monetized Square products. 2. Internationally, the company is accelerating. 44 new products were already launched internationally in the first 6 months of 2022 and revenue (including Afterpay) from outside the U.S. represented 13% of Square's gross profit in the second quarter, up from 8%. 3. Mid-market sellers, meaning Block customers with more than $500,000 in sales, have grown the fastest. Block Q2 2022 shareholder letter As you can see, they also represent a bigger and bigger segment of the company's revenue, from 27% to 39%. That's good to see, as they typically use more products they pay for. And of course, as a part of Block's revenue is based on take-rates, the higher the sales volume, the higher Block's revenue. These bigger customers could also shield Block better from a recession. 4. Round-Ups: Cash App users can now use Round-Ups. It means they can round up the payments they do with their Cash App Card and invest the spare change in stocks or bitcoin, as they want. As Jack Dorsey points out:
Fintech giant Block sued over alleged 'Negligent' data security practices, 8.2M customer's data stolen
Dorsey’s fintech business Block (NYSE:SQ) on Tuesday found itself on the receiving end of a class action lawsuit accusing the company of failing to protect personal data of some 8.2 million Cash App investing customers compromised during a 2021 breach, according to Forbes report. News of the lawsuit came just hours after a whistleblower at Twitter, Dorsey’s previous company, went public with details of the company’s allegedly incredibly lax security policies that he says may have put users’ data at risk. The lawsuit is related to a December 2021 breach of Cash App Investing, in which 8.2 million users’ data was stolen by a former employee. It claims the data was able to be stolen by the ex-employee due to Block’s weak security practices. The former employee allegedly downloaded the data during his time at the company without Block’s (SQ) authorization.
Block: More Unnecessary Bitcoin Pain
Block continues to report strong growth in gross profits. Investors need to learn to strip out transaction costs and bitcoin revenues to accurately analyze financials. The stock trades for less than 10x gross profits while the P/E multiple remains elevated due to aggressive spending ultimately looked past by growth investors. While fintechs have rebounded sharply in the last few weeks, Block (SQ) still trades below the levels where the stock traded back in 2018 due to bitcoin hampered results. The company actually reported a very solid quarter, but the market just isn't capable of getting past the headline weak revenue numbers due to the collapse in the low margin bitcoin transaction revenues. My investment thesis is far more Bullish on the stock while the market is distracted by misleading numbers. Focus On Gross Profits Technically, Block reported Q2'22 revenues fell 6%. Not many fintechs are reporting such weak revenue metrics. PayPal (PYPL) surged after reporting revenues grew 9% and a stock buyback combined with activist involvement were positive signs for the business. PayPal wouldn't have rallied on a report where sales fell. Though, smart investors in Block wouldn't even pay attention to the topline metric used by investors in most stocks. For Q2'22, Block reported bitcoin revenues dived nearly $1 billion from last Q2. Similar to last year, the bitcoin revenues only generated ~$41 million in gross profits in the June quarter. The stock would perform much better without these volatile numbers in the quarterly earnings report. Source: Block Q2'22 Shareholder Letter What ultimately matters for Block are the net revenues or the gross profits. The net revenues eliminate the bitcoin passthrough revenues and transaction-based costs for Square transactions. The gross profits naturally subtract these costs and other costs of revenues with these profits growing 29% to reach $1.47 billion. Source: Block Q2'22 Shareholder Letter Excluding the BNPL platform, Block reported gross profits increased by 16%. Either way one wants to dice the numbers, the fintech reported a solid quarter. The bitcoin trading platform helps build the financial ecosystem of Square, specially Cash App users, but the numbers convolute the quarterly results. On the flip side here, the stock will likely get a boost as bitcoin revenues rebound. The bitcoin price has already rallied back to nearly $23K. Prices hit a low in mid-June below $19k and Block could quickly see revenues rebound. Source: CoinDesk The BNPL product hasn't been a great investment product. Block still claims Afterpay will help convert more sales with customers transacting 3x more than single channel customers in 2021. The only problem with 2021 data is that BNPL became a fad during the period. The combination here along with general growth in the Square and Cash App ecosystems will continue driving growth in the business. Bitcoin doesn't move the needle for the business, but the cryptocurrency rebound will drive the needle on revenues boosting investor confidence. Buy The Dips The stock trades at the levels originally seen back in 2018 similar to a lot of covid pull forward stories. Block is now on the pace to generate $6.0 billion in annual gross profits while the stock valuation has dipped to a market cap of $51 billion. Block trades far below 10x gross profits here. The company guided to Square ecosystem GPV up 18% in July in another strong indication of strong growth ahead for the mobile payments firm. The old Square has been historically one of the most volatile trading stocks on the market. Due to the focus on investing for aggressive growth, the stock had made plenty of big runs and corresponding collapses in the past. Block reached $100 all the way back in late 2018 when former CFO Sarah Friar left to become the CEO of Nextdoor Holdings (KIND). The stock collapsed to $32 due to covid to only soar to nearly $290 in the next year. Block fell to $56 recently leaving the stock at the recent lows 50% below the 2018 peak.
|SQ||US IT||US Market|
Return vs Industry: SQ underperformed the US IT industry which returned -37.2% over the past year.
Return vs Market: SQ underperformed the US Market which returned -21.5% over the past year.
|SQ Average Weekly Movement||9.9%|
|IT Industry Average Movement||8.0%|
|Market Average Movement||6.9%|
|10% most volatile stocks in US Market||15.6%|
|10% least volatile stocks in US Market||2.8%|
Stable Share Price: SQ is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 10% a week.
Volatility Over Time: SQ's weekly volatility (10%) has been stable over the past year.
About the Company
Block, Inc., together with its subsidiaries, creates tools that enables sellers to accept card payments and provides reporting and analytics, and next-day settlement. It provides hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts Europay, MasterCard, and Visa (EMV) chip cards and Near Field Communication payments; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; Square Register that combines its hardware, point-of-sale software, and payments technology; Square Terminal, a payments device and receipt printer to replace traditional keypad terminals, which accepts tap, dip, and swipe payments. The company also offers various software products, including Square Point of Sale; Square Appointments; Square for Retail; Square for Restaurants; Square Online and Square Online Checkout; Square Invoices; Square Virtual Terminal; Square Team Management; Square Contracts; Square Loyalty, Marketing, and Gift Cards; and Square Dashboard.
Block, Inc. Fundamentals Summary
|SQ fundamental statistics|
Is SQ overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|SQ income statement (TTM)|
|Cost of Revenue||US$11.18b|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
|Earnings per share (EPS)||-0.82|
|Net Profit Margin||-3.00%|
How did SQ perform over the long term?See historical performance and comparison