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XYZ Drops 21% Post Q4 Earnings: Buy, Sell or Hold the Stock?
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Block (XYZ - Free Report) shares plunged 3.56% to close at $65.92 on Monday. Over the past two trading sessions, the XYZ stock has dropped 20.6% following an unimpressive fourth-quarter 2024 results. Adjusted earnings of 71 cents per share lagged the Zacks Consensus Estimate by 14.46% and net revenues of $6.03 billion missed the consensus mark by 3.2%. However, earnings and revenues increased 51.1% and 4.5% year over year, respectively.
Despite the earnings and revenue miss, Block benefited from an expanding product portfolio and continuing go-to-market initiatives. XYZ invested significantly in marketing initiatives in the second half of 2024, which, along with a rich partner base and robust field sales strategies, are expected to drive growth in 2025.
Block expects year-over-year gross profit growth of at least 15% despite a headwind of 50 basis points (bps) from unfavorable forex. Adjusted operating profit is expected to be $2.1 billion or a margin of 21% on gross profit, suggesting 240 bps year-over-year expansion. XYZ expects to exit 2025 at a Rule of 40 run rate and remain on track to achieve the targeted Rule of 40 in 2026.
However, will the strong growth promises help the stock recover in 2025? Block shares have lost 22.4% on a year-to-date basis, significantly underperforming the Zacks Technology Services industry and the broader Zacks Business Services sector.
XYZ Stock Lags Sector & Industry
Image Source: Zacks Investment Research
Block shares are overvalued, as suggested by the Value Score of C.
XYZ shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
XYZ Trades Below 50-day & 200-day SMAs
Image Source: Zacks Investment Research
Let us dig deep to find out what investors should do with the XYZ stock.
Block’s Top Line to Ride on Strong Portfolio
Year-over-year growth in XYZ’s fourth-quarter 2024 revenues was driven by 5.1% growth in Transaction revenues, and a 16.8% increase in Subscription and Services. Square revenues increased 7.7% year over year and benefited from strong demand for software and integrated payments and banking products. Within Cash App, Block saw broad-based strength across Cash App Card, Buy Now Pay Later (BNPL) and Cash App Borrow.
XYZ’s comprehensive commerce ecosystem, which enables sellers to combine software, hardware and payment services to accept payments from customers, helps it sustain solid momentum across sellers. The company’s omnichannel offerings, which help sellers create differentiated customer experiences on the back of customer insights by managing orders from point-of-sale (POS) and eliminating manual aggregation of online and in-person orders, are adding strength to its seller base.
These factors drove Block’s Gross Payment Volume (GPV), which increased 7.8% year over year to $61.95 billion. Square’s GPV was $58.9 billion, up 10% year over year and mid-market sellers accounted for 42% of fourth-quarter 2024’s GPV. Square’s GPV in the U.S. market grew 6.9% year over year, and GPV in the international markets rallied 25% (24% year over year on a constant-currency basis).
Square GPV by Industry in 2024
Image Source: Block
The BNPL platform grew 19% year over year to $10.3 billion in Gross Merchandise Value, driven by the Pay-in-Four offering’s strong volume growth and gift cards. Afterpay’s BNPL offering is now available to Alphabet’s (GOOGL - Free Report) Google Play users. Block leverages Afterpay to boost consumer engagement and has integrated Afterpay with Cash App Card. This enables eligible customers to retroactively pay over time for their purchases. Cash App volumes grew more than four times year over year to $4 billion in 2024.
Rich Partner Base Aids XYZ Stock’s Prospects
Block’s strong positioning in the digital payments industry on the back of its robust payment and POS solutions is a notable driver. In 2024, the company’s partnership team surpassed expectations for lead generation and volume. The average expected seller volume for partner-driven leads exceeded $1 million in the fourth quarter, meaningfully larger than XYZ’s existing base.
The company is investing aggressively in expanding its partner base, aiming to scale its distribution network. Its partnership with Sysco, a leading global foodservice distributor, is expected to help food and beverage sellers operate more smoothly. Apart from the foodservice domain, XYZ is leveraging partnerships to expand in the BNPL market.
Block is expanding its footprint among beauty and wellness providers with partner integrations, including SalonInteractive, Vish, Submatic, Pomp, SalconScale and Glammatic. It inked a distribution partnership with SalonCentric to bring Square’s hardware and software offerings to more beauty professionals.
XYZ’s Cash App and Lyft (LYFT - Free Report) inked a partnership to bring a customer-friendly payment method to the latter’s customers. Cash App’s partnership with Google Play offers a preferred alternative payment option when checking out on their Android smartphones or tablets.
The Zacks Consensus Estimate for 2025 earnings is pegged at $4.38 per share, up by a penny over the past 30 days. The figure suggests 29.97% growth over the 2024 reported figure of $3.37.
The consensus mark for 2025 revenues is pegged at $26.83 billion, suggesting 11.2% growth over 2024’s reported figure of $24.12 billion.
XYZ’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, missing in one and matching in the remaining one, the average surprise being 11.25%.
While Block’s rich partner base and expanding portfolio are noteworthy for investors, it suffers from challenging macroeconomic conditions, unfavorable forex and stretched valuation.
XYZ currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.
Image: Shutterstock
XYZ Drops 21% Post Q4 Earnings: Buy, Sell or Hold the Stock?
Block (XYZ - Free Report) shares plunged 3.56% to close at $65.92 on Monday. Over the past two trading sessions, the XYZ stock has dropped 20.6% following an unimpressive fourth-quarter 2024 results. Adjusted earnings of 71 cents per share lagged the Zacks Consensus Estimate by 14.46% and net revenues of $6.03 billion missed the consensus mark by 3.2%. However, earnings and revenues increased 51.1% and 4.5% year over year, respectively.
Despite the earnings and revenue miss, Block benefited from an expanding product portfolio and continuing go-to-market initiatives. XYZ invested significantly in marketing initiatives in the second half of 2024, which, along with a rich partner base and robust field sales strategies, are expected to drive growth in 2025.
Block expects year-over-year gross profit growth of at least 15% despite a headwind of 50 basis points (bps) from unfavorable forex. Adjusted operating profit is expected to be $2.1 billion or a margin of 21% on gross profit, suggesting 240 bps year-over-year expansion. XYZ expects to exit 2025 at a Rule of 40 run rate and remain on track to achieve the targeted Rule of 40 in 2026.
However, will the strong growth promises help the stock recover in 2025? Block shares have lost 22.4% on a year-to-date basis, significantly underperforming the Zacks Technology Services industry and the broader Zacks Business Services sector.
XYZ Stock Lags Sector & Industry
Image Source: Zacks Investment Research
Block shares are overvalued, as suggested by the Value Score of C.
XYZ shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
XYZ Trades Below 50-day & 200-day SMAs
Image Source: Zacks Investment Research
Let us dig deep to find out what investors should do with the XYZ stock.
Block’s Top Line to Ride on Strong Portfolio
Year-over-year growth in XYZ’s fourth-quarter 2024 revenues was driven by 5.1% growth in Transaction revenues, and a 16.8% increase in Subscription and Services. Square revenues increased 7.7% year over year and benefited from strong demand for software and integrated payments and banking products. Within Cash App, Block saw broad-based strength across Cash App Card, Buy Now Pay Later (BNPL) and Cash App Borrow.
XYZ’s comprehensive commerce ecosystem, which enables sellers to combine software, hardware and payment services to accept payments from customers, helps it sustain solid momentum across sellers. The company’s omnichannel offerings, which help sellers create differentiated customer experiences on the back of customer insights by managing orders from point-of-sale (POS) and eliminating manual aggregation of online and in-person orders, are adding strength to its seller base.
These factors drove Block’s Gross Payment Volume (GPV), which increased 7.8% year over year to $61.95 billion. Square’s GPV was $58.9 billion, up 10% year over year and mid-market sellers accounted for 42% of fourth-quarter 2024’s GPV. Square’s GPV in the U.S. market grew 6.9% year over year, and GPV in the international markets rallied 25% (24% year over year on a constant-currency basis).
Square GPV by Industry in 2024
Image Source: Block
The BNPL platform grew 19% year over year to $10.3 billion in Gross Merchandise Value, driven by the Pay-in-Four offering’s strong volume growth and gift cards. Afterpay’s BNPL offering is now available to Alphabet’s (GOOGL - Free Report) Google Play users. Block leverages Afterpay to boost consumer engagement and has integrated Afterpay with Cash App Card. This enables eligible customers to retroactively pay over time for their purchases. Cash App volumes grew more than four times year over year to $4 billion in 2024.
Rich Partner Base Aids XYZ Stock’s Prospects
Block’s strong positioning in the digital payments industry on the back of its robust payment and POS solutions is a notable driver. In 2024, the company’s partnership team surpassed expectations for lead generation and volume. The average expected seller volume for partner-driven leads exceeded $1 million in the fourth quarter, meaningfully larger than XYZ’s existing base.
The company is investing aggressively in expanding its partner base, aiming to scale its distribution network. Its partnership with Sysco, a leading global foodservice distributor, is expected to help food and beverage sellers operate more smoothly. Apart from the foodservice domain, XYZ is leveraging partnerships to expand in the BNPL market.
Block is expanding its footprint among beauty and wellness providers with partner integrations, including SalonInteractive, Vish, Submatic, Pomp, SalconScale and Glammatic. It inked a distribution partnership with SalonCentric to bring Square’s hardware and software offerings to more beauty professionals.
XYZ’s Cash App and Lyft (LYFT - Free Report) inked a partnership to bring a customer-friendly payment method to the latter’s customers. Cash App’s partnership with Google Play offers a preferred alternative payment option when checking out on their Android smartphones or tablets.
XYZ’s Earnings Estimates Revision Trends Northward
The Zacks Consensus Estimate for 2025 earnings is pegged at $4.38 per share, up by a penny over the past 30 days. The figure suggests 29.97% growth over the 2024 reported figure of $3.37.
The consensus mark for 2025 revenues is pegged at $26.83 billion, suggesting 11.2% growth over 2024’s reported figure of $24.12 billion.
XYZ’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, missing in one and matching in the remaining one, the average surprise being 11.25%.
Block, Inc. Price and Consensus
Block, Inc. price-consensus-chart | Block, Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Conclusion
While Block’s rich partner base and expanding portfolio are noteworthy for investors, it suffers from challenging macroeconomic conditions, unfavorable forex and stretched valuation.
XYZ currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.