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Bear of the Day: Block Inc. (SQ)

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Block Inc. (SQ - Free Report) , formally known as Square, has transformed from a small company that sold credit card readers for smart devices into a diversified financial tech standout.

Block’s long-term outlook appears relatively intact in our digital money world. But SQ shares have tumbled alongside most other growth stocks. Block also faces tough-to-compete-against periods and the prospect of slowing consumer spending.

Block’s Story

Block portfolio includes a range of point-of-sale offerings, broader payment software and infrastructure, business loans, peer-to-peer payments, bitcoin transactions, and much more. The company’s goal is to be a futuristic digital-native banking and financial services powerhouse for both sellers and consumers.

Block’s business-focused fintech offerings are catching on with larger sellers amid the continued e-commerce revolution and it’s been able to successfully join together its in-person POS segment and its digital commerce features. Wall Street also grew to love its P2P platform the Cash App.

Block made a pretty big splash when it decided to acquire “buy now, pay later” standout Afterpay. The all-stock deal valued at $29 billion closed on January 31. The broader buy now, pay later segment has, however, come under pressure amid the market selloff and downbeat consumer sentiment.

Zacks Investment Research
Image Source: Zacks Investment Research

Block is coming off to an impressive run of top-line growth that included 86% sales expansion in 2021 and 102% in 2020 which saw it climb from $4.7 billion in total FY19 revenue to $17.7 billion in 2021. These are nearly impossible to compete against periods, boosted by the covid economy.

With this in mind, current Zacks estimates still call for Block’s 2022 revenue to climb roughly 2% and then jump another 23% in 2023. Both would mark by far its slowest ever growth as a public firm. At the same time, its adjusted 2022 earnings are projected to drop 50% YoY to $0.85 a share. And its consensus FY22 and FY23 EPS estimates have fallen since its last release.

Bottom Line

Block’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) at the moment. Wall Street has also continued to hammer SQ alongside all things growth, with the stock down over 75% since last August and 60% in 2022. All of its covid gains are gone, with it trading within a range it hovered between in 2018, 2019, and 2020.

The downturn and SQ’s current levels might attract some long-term investors. But it might be best to stay away from the stock at least until Wall Street shows some willingness to buy these beaten-down names.

Investors won’t have to wait too long for company updates, with Block set to report its quarterly results on August 4.

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