To The Moon

$Block, Inc.(XYZ)$

Quarterly Earnings and Stock Performance

Block, formerly known as Square, released its latest quarterly earnings on Thursday after the market closed. Following this, the stock, which was previously traded under the symbol SQ, saw a significant drop of over 15% when the market opened on Friday. In fact, over the last five years, the stock is still down by nearly 18%, reflecting a poor performance over that period.

Earnings Per Share (EPS): Adjusted EPS was $0.71, a 51% increase from the previous year but below the anticipated $0.88. Revenue: Net revenue reached $6.03 billion, a 4% year-over-year increase, missing the expected $6.29 billion. Gross Profit: Gross profit rose 14% to $2.31 billion, slightly below the forecasted $2.33 billion.

Revenue and Growth: Block’s overall revenue growth remains solid, with Cash App's revenue growing at a 16.3% compound annual growth rate (CAGR) over the past three years, while Square's revenue growth is slower at 10.2%. However, Square’s growth has flattened in recent quarters, which could be a concern, especially with rising competition from companies like Toast in the restaurant space.

Bitcoin Revenue: Bitcoin-related revenue amounted to $2.42 billion for the quarter. Despite Jack Dorsey’s focus on crypto, this still remains a small part of the overall business, and Block is facing competition from other platforms like Coinbase and Robinhood.

Gross Profit: Cash App’s gross profit grew significantly, while Square's gross profit showed slower growth (12% year-over-year). International Square revenue grew faster but experienced deceleration, reflecting broader challenges in the company's growth trajectory.

Pricing Metrics and Growth Potential

As a note, I no longer hold any shares in Block. However, looking at the company’s pricing metrics and growth rates, the stock appears to be very cheap. With a forward price-to-earnings ratio of 15.9 times, expected revenue growth of around 10%, and a faster-growing EPS, Block’s market cap sits at $40 billion. Despite this, my main issue with Block has always been its leadership—specifically, Jack Dorsey. I believe that if the company had a change in CEO, it would likely be trading closer to $100 than $70.

Analyst Price Targets and Historical Metrics

Currently, the average analyst price target is still about 41% higher than the current price, although this is expected to change as more price target updates are made. When looking at pricing metrics such as PE, price-to-sales, and price-to-free-cash-flow compared to the 5-year average, it’s clear that Block is trading below its historical mean. The price/earnings-to-growth ratio of 0.47 also suggests that the stock is extremely cheap, though it seems the market no longer trusts the management.

Revenue and Growth Segments

Now, let’s break down what’s happened this quarter, covering both the positives and negatives. On the positive side, Block is still expected to grow quickly, with Cash App and Square continuing to show revenue growth. Over the last three years, Cash App’s revenue grew at a compound annual growth rate of 16.3%, while Square’s grew more slowly at 10.2%. However, Square’s growth has stagnated in recent quarters, and this is compounded by competition from companies like Toast, which has been dominating the restaurant space.

Bitcoin Revenue and Competition

Block's Bitcoin revenue, while substantial at $2.42 billion, remains a small fraction of total revenue. Additionally, despite Jack Dorsey's strong focus on crypto, companies like Coinbase and Robinhood have remained the go-to platforms for crypto transactions.

Gross Profit and Growth Slowing

When looking at gross profit, Cash App’s grew rapidly, whereas Square’s showed much slower growth, just 12% year-over-year. International Square revenue saw higher growth but still experienced some deceleration. Cash App’s monthly active user growth has also been flat for the past few quarters, especially when compared to Venmo, which is growing faster.

Despite the quarterly shortfall, Block projects a gross profit of at least $10.22 billion for 2025, indicating a focus on growth and product innovation.

Profitability and Cash Flow

A significant decline in its cash flow. The company posted an adjusted free cash flow outflow of $191 million, marking a 75% decrease year-over-year. This indicates that Block faced challenges in generating cash from its operations during the quarter.

However, when considering the trailing 12-month period, Block saw a 32% increase in free cash flow, suggesting an improvement over a longer-term horizon despite the difficulties in the most recent quarter.

Despite these challenges, Block is making efforts to shift its focus towards increased profitability, with plans for share buybacks and capital returns to shareholders, signaling that the company is taking steps to address cash flow concerns and stabilize its financial position. However, the company still has a long way to go before achieving consistent, positive free cash flow comparable to other tech giants like PayPal.

Outlook and Growth Forecast

For the outlook, Block gave a lower-than-expected 2025 growth forecast, with gross profit growth of just 15% year-over-year and an adjusted operating income margin of 21%. For Q1, they expect just an 11% year-over-year increase in gross profit, showing continued slow growth.

Analysts from J.P. Morgan maintain an Overweight rating with a $90 price target, suggesting confidence in Block's long-term prospects despite the recent earnings miss.

Re-acceleration of Square’s GPV and Stock Price

Despite some bright spots, like the re-acceleration of Square’s GPV growth, overall performance remains inconsistent. The stock price is now trading well below the 20, 50, and 200-day moving averages, and it’s unclear if the uptrend from August 2024 will be respected. The market is clearly skeptical of the company’s leadership under Jack Dorsey, and the stock has suffered as a result.

Conclusion

In conclusion, the stock’s decline reflects ongoing disappointments, as Block failed to meet market expectations once again. If the leadership changes, however, I believe the stock could improve significantly.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.