Investors are probably familiar with it Block (NYSE: SQ)the burgeoning payments and technology company. It focuses on merchants with its Square platform, while Cash App focuses on individuals.
Historically, growth has been excellent, but the fintech stocks does not go as hoped. The stock is up just 49% over the past five years and is currently trading 65% below its August 2021 peak. This is despite the fact that the shares are up 58% in the past four months.
Investors who want to invest in Block while it’s still down need to know these three things first.
I just highlighted how fantastic Block’s growth has been. In the three-month period ending September 30, the company generated more than $2.2 billion in revenue gross profitwhich increased by 19% year on year. This key performance measure was double that of the same period three years ago. It’s clear that the company is doing a great job serving existing customers and finding new ones.
An important part of Block’s strategy is to continually introduce product enhancements and enhanced features. Recently, the company launched an AI tool that improves the onboarding experience for salespeople. Additionally, the Buy Now, Pay Later Afterpay service will be available for use as part of the Cash App Card. It’s all about finding ways to better meet the different financial needs of its user base.
The leadership team believes Block has barely scratched the surface total addressable market. They predict that Square’s gross profit opportunity is $130 billion, while Cash App’s is smaller at $75 billion. This provides plenty of room for business growth over time.
As is true of any fast-growing, technology-focused company, Block’s strategy, as I just discussed above, was to invest aggressively in product development, sales, and marketing in an effort to increase its customer base as quickly as possible. Patient investors would then see rising profits well into the future.
The tighter macro environment of 2022 and 2023, namely around higher interest rates, changed that plan. Many companies began to right-scale their operations to increase operational efficiency and become financially healthy. Block is making enormous progress in this area.
By the end of 2023, management had managed to get the workforce below 12,000 employees, a goal set at the end of Q3 2023. “This restriction forces us to prioritize higher-impact work that we believe will lead to growth,” founder and CEO Jack Dorsey wrote in the Q4 2023 letter.
This focus on cost control explains why Block has adapted operating income by 2024, the total is expected to be just under $1.6 billion, which would be a 344% increase year over year. According to consensus analysts, operating income will grow at a fantastic annual pace of 51% over the next two years.
Scaled payment platforms can be incredibly profitable. Just take a look PayPal, VisaAnd MasterCard. Block can also be viewed as a software provider, a business model known to generate strong revenues as sales increase. Investors should watch for Block’s bottom line to move in this direction.
Jack Dorsey is a big one Bitcoin bull. He believes the world’s most valuable cryptocurrency will be the internet’s native currency, a perspective reinforced by the rise of AI.
Block not only owns $530 million worth of Bitcoin on its balance sheet (as of September 30), but is also working on Bitcoin projects to drive adoption of the crypto. The company has developed a hardware wallet, mining equipment and financial services to make Bitcoin transactions easier.
Consequently, investors looking to buy Block stock during the dip should probably also be optimistic about Bitcoin’s long-term trajectory, as the digital asset starts to become a more important part of the overall business.
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Block, Mastercard, PayPal and Visa. The Motley Fool recommends the following options: January 2025 long calls of $370 on Mastercard, long January 2027 calls of $42.50 on PayPal, short December 2024 calls of $70 on PayPal, and short calls of $380 in January 2025 on Mastercard. The Motley Fool has a disclosure policy.
3 Things to Know If You Buy Block Stock Today was originally published by The Motley Fool
