Opinions
David Burrows
Block Inc
SQ-N
BUY
Dec 13, 2017
Stock price when the opinion was issued
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SQ is now trading at 31x times' Forward P/E. In the 2Q, SQ’s revenue grew 25% to $5.53B, beating the estimates of $5.1B and EPS was $0.39 beating estimates of $0.37. The cash app users remain solid, up 15% to around 54 million monthly activities. We think the share price overreacted somewhat because of overall gross profit growth deceleration from 32% in Q1 to 27% in Q2, and expected to further decelerate to the 21% range. The gross payment volume (GPV) also decelerated significantly to only 12% growth compared to more than 20% last year. The balance sheet is strong, with net cash of around $600M. Overall, the quarter was okay, but a deceleration in growth in operating metrics worries investors. However, we think the Square payment ecosystem is solid, we think SQ is a HOLD for now. Block's healthy revenue growth and improving trends for operating margin should pave the way for profitability, despite decelerating near-term volume growth. Management raised guidance again to deliver Ebitda of $1.5 billion for 2023, a gain of $25 million vs. a loss of $115 million previously, even as some operating expenses from 1Q were pushed forward. Diversification of revenue streams is positive, with each vertical software offering now generating more than $100 million in annualized gross profit.
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Loves that it's a platform business. Plays in a space that competitors are too big for or the space is too small. Ability to build technology and adapt revenue streams with the times. Proven to execute extremely well. Has gone head to head with AMZN and won. Performance has been great, though an up-and-down ride at times. Can hold for a long time. No dividend.
Much better buying opportunity and growth prospects than the Mag 7.
Premium contentBlock, Inc. (formerly Square, Inc) is an American technology company offering financial services to consumers and businesses. Founded in 2009 by Jack Dorsey, it leads the U.S. point-of-sale systems market. As of 2023, Block serves 56 million users and 4 million businesses, processing $228 billion in payments annually. Social media mentions are up 27% in the past 24h.
12-month price target of $83.50, nice long runway. If there's a company that can disrupt payment or banking systems, it's this name. Very strong growth prospects. Agreed to buy Afterpay. February earnings missed on top and bottom, though they did increase guidance (probably due to Afterpay).
Sell or Hold? One of the clear themes in this market has been Fintech and companies around payments. Digital payments are growing very, very rapidly and are going to continue to do so. This company is very effective in the midsize and small size companies providing the ability to transact, doing analytics, managing receipts, etc. It has recently pulled back from $49 into the 50-day moving average, and has done this type of pullback probably 10 times in the last 2 years. Each time has been an opportunity to Buy. There is very strong sales revenue growth, and is in a sector that is very attractive. In the near term there has been money rotating from technology to other sectors, but he thinks technology and Fintech are sectors that are going to perform well in the next year. He would buy this.