Block Inc. (NYSE: SQ) is a financial technology (fintech) provider in the computer and technology sector focused on making commerce and financial services accessible to businesses and consumers. While the company has many synergistic and complementary products and services, it has two core ecosystems: Cash App and Square.
Block competes with other fintechs like PayPal Holdings Inc. (NASDAQ: PYPL), Shopify Inc. (NYSE: SHOP) and financial payment networks like Visa Inc. (NYSE: V) and Mastercard Inc. (NYSE: MA).
The Cash App Ecosystem Is Growing Revenues 42% YoY
The fastest-growing ecosystem is Cash App, which has averaged 42% YoY growth in the last two years. This mobile-first, all-in-one app platform provides users with tools to manage their money. It offers instant peer-to-peer payments and functions as an electronic wallet that can store cash and Bitcoin and take direct deposits. Users can obtain the Cash Card, a Visa debit card linked to their Cash App balance, to make purchases. Cash App also offers users exclusive discounts with Cash App Pay and Cash App Card.
The Cash App Card with Boost includes instant discounts and cashback rewards from select merchants in the Square merchant network. Cash App can be used to invest in stocks with zero commission trades and Bitcoin. Cash App also integrated the Afterpay buy-now-pay-later (BNPL) service, which enables users to make periodic payments on qualifying purchases.
Afterpay Drives Cash App Pay Volumes
Block CEO Jack Dorsey noted that Cash App Pay is a huge opportunity thanks to Afterpay. “The volume was up more than 7x compared to the prior year, and 18% quarter-over-quarter. What's driving the growth is our sales team, Afterpay's enterprise sales team. As of June, Cash App Pay actives were more than 80% of the scale of Afterpay US actives compared to less than 25% a year ago.”
Square Ecosystem Grows Revenues 15% YoY
Square enables small and medium-sized businesses (SMBs), merchants, and individual sellers of all sizes to start, run, and grow their businesses. Square is a mature ecosystem that has grown 15% YoY for the last two years. Square enables eCommerce and point-of-sale (POS) payment software, hardware and payment processing services, and equipment. Square was the original ecosystem that became famous, providing users with Square reader devices that attach to a smartphone or tablet, enabling them to take credit card payments. Square's suite of tools enables payroll processing loans, online stores, booking and appointments, and restaurant POS solutions.
Square's Improved Onboarding Platform
Square integrated a new onboarding platform in July 2024 and rolled it out to eligible sellers in the United States. The new process is much simpler and reduces the number of steps required to onboard onto Square from more than 30 to just four steps. It allows for more customization based on a given seller's traits, saving time while introducing them to relevant products at the optimal point during onboarding.
Bulking Up Square Partnerships
Square continues to invest in its partnerships. It already has hundreds of partners in its App Marketplace, including longstanding relations with Intuit Inc. (NASDAQ: INTU), Quickbooks, Restaurant365, and Wix.com Ltd. (NASDAQ: WIX). Square continues to explore more partnerships, notably in international markets, to simplify its packaging, pricing, and product design.
The Growth of the Parts Makes the Whole Attractive
Block reported solid Q2 2024 EPS of 93 cents, beating consensus estimates by 9 cents. Revenues grew 11.3% YoY to $6.16 billion, falling short of the $6.27 billion consensus estimates. Block processed $61.94 billion of gross payment value (GPV), up 5% YoY. Transaction-based gross profit as a percentage of GPV was 1.5%. Square generated 15% YoY growth, and Cash App generated 23% YoY growth in the quarter.
Block Raises Full Year 2024 Estimates
Block sees Q3 2024 gross profit of $2.22 billion, adjusted EBITDA of $695 million and adjusted operating income of $320 million. Block raised its full-year 2024 guidance for gross profit of $8.89 billion, up from previous guidance of $8.78 billion, adjusted EBITDA of $2.90 billion, up from $2.76 billion and adjusted operating income of $1.44 billion, up from $1.30 billion.
Dorsey stated that its Rule of 40 - meaning the profit percentage and adjusted operating income margin combined to reach 40 - is on track for 2026. Currently Block has reached 35%, up from 32%.
SQ Stock Continues to Trade in a Descending Price Channel
A descending price channel is also known as a falling price channel. It is represented by parallel diagonal upper and lower trendlines representing lower tops and lower bottoms, respectively. The only way to break the pattern is by breaking out through the upper trendline resistance.
The daily descending price channel for SQ commenced at $87.52 on March 13, 2024. Incidentally, this is also the average analyst consensus price target. SQ consistently made lower highs on bounces, followed by lower lows on drops. The daily anchored VWAP overlaps with the upper descending trendline at $67.13, forming a double resistance level. The daily relative strength index (RSI) fell to the 42-band. Fibonacci (Fib) pullback support levels are at $58.97, $55.13, $51.29, and $45.82.
Block’s average consensus price target is $87.52, and its highest analyst price target sits at $106.00.
SQ continues making lower highs and lower lows, as represented by the falling price channel. Bullish investors can consider using cash-secured puts at the fib pullback support levels. A wheel strategy can be executed by writing covered calls after being assigned to generate income and provide a buffer against a deeper pullback.
