Shares of Jack Dorsey’s mysterious fintech firm Block (SQ) got a bit of relief last week, ending Friday up over 11%. Still down around 70% from its all-time high of around $267 per share, Block stock remains a high-risk bet for only the most courageous of falling-knife catchers.
The company, which is moving on from its days as a POS (Point-of-Sale) payments player, now has Dorsey’s undivided attention. Understandably, it’s hard to be a CEO of one technology company, let alone two of the most influential ones out there. With the potential sale of Twitter (TWTR) to Elon Musk, Dorsey can now give Block all his attention as “Block Head.”
Dorsey will have his hands full. Higher interest rates aren’t the only thorn in the side of his firm. A pick-up in competitive pressures in the fintech arena could pressure Square — one of the biggest building blocks in the Block empire — where it hurts.
Square was a remarkable innovation for its time. While the company likely has “sticky” customers that aren’t going anywhere, there are concerns that the company may be out-innovated by the likes of big-tech firm Apple (AAPL).
Apple’s push into the fintech scene is no surprise. However, the firm’s “Tap to Pay” contactless payments product seems to render Square’s hardware less useful. With Apple also pursuing digital payments, it will be very interesting to see how Block responds.
The million-dollar question is whether changing the company’s name from Square to Block was merely a distraction, or the beginning of a lateral shift from the firm.
Fans of Dorsey ought to give the man the benefit of the doubt. He’s one of the smartest people in Silicon Valley, and his leadership alone may be worth betting on, even if it’s less clear where we see Block going over the next few years.
After such a catastrophic implosion in shares of Block, it’s easy to be a bear. However, I am bullish, as the company is already looking to skate where the puck is headed next in the mysterious world of fintech.
Further, Dorsey’s undivided attention can only be a significant positive for the firm as it moves forward with its evolution.
Block’s Quarterly Earnings Flop
Bitcoin (BTC) and cryptocurrencies have been sinking lower alongside the broader stock markets this year.
For the first quarter, Block reported a mild drop in revenue year-over-year, thanks to weakness in Bitcoin. Even with Bitcoin taken out of the equation, Square and Cash App, which reported 35% and 26% in top-line growth, respectively, were nothing to write home about.
Further, profitability prospects have not noticeably improved.
The company’s newly acquired Afterpay gives the firm a front-row seat to the high-growth BNPL (Buy Now Pay Later) market, which should help boost growth over the long haul. As I noted in a prior piece, though, Afterpay could increase the risk profile on shares of Block come an economic downturn.
These days, it seems like a Fed-induced recession is inevitable, and BNPL may be a sore spot for Block as discretionary expenditures look to hit a roadblock.
Block’s Cash App Remains Robust
Despite the dents in Block’s armor, it’s hard to dismiss the company. Block is more than capable of pivoting to increase its lead in digital payments.
Cash App is arguably Block’s most exciting platform. It’s incredibly popular, and is evolving into an intriguing ecosystem, with services that go well beyond peer-to-peer money transfers. From crypto trading to investing and even banking, Cash App is a platform that’s becoming more useful with time.
Last week, Square pulled the curtain on its omnichannel commerce tools, including Cash App Pay for developers. Such tools could help increase Block’s digital footprint. Though the unveiling of new APIs is intriguing, the space remains wildly competitive.
Block: The Best Blockchain Bet?
With two wild-card “building block” projects in TBD and Spiral, Block could have the next big blockchain innovation up its sleeves. Spiral is an initiative focused on Bitcoin, while TBD is supposedly working on a decentralized Bitcoin exchange.
With such intriguing blockchain-focused projects going on under the hood, one has to think that a Block coin, or something of the sort, may also be in the works.
Wall Street’s Take
According to TipRanks, SQ stock comes in as a Moderate Buy. Out of 33 analyst ratings, there are 29 Buy recommendations and four Hold recommendations.
The average Block price target is $160.39, implying 101.3% upside potential. Analyst price targets range from a low of $105 per share to a high of $210 per share.
Bottom Line on Block Stock
Block is a tough stock to love right now, but with Dorsey fully focused on crypto, the stock may very well be one of the best ways to bet on the future of blockchain technology.
In the meantime, payments will have more than their fair share of challenges, as the Fed’s landing could prove anything but soft.
Discover new investment ideas with data you can trust.
Read full Disclaimer & Disclosure
