As we progress with our £10-a-week investment challenge, we are now on the way of our fourth pick, you can check the other picks on our growth stocks investment challenge post, but in the meantime let’s reveal our next choice for the Growth Stocks Pie: Block Inc. (NYSE: SQ). Following the usual structure for the stock picks, on this article we will explore why Block is an excellent addition to our growth portfolio, evaluating its potential, recent financial performance, analysts’ views, and strategic developments.
Company Overview
Block Inc., formerly known as Square, is a financial technology powerhouse that has revolutionised digital payments. Its ecosystem includes solutions for small businesses, peer-to-peer transactions, cryptocurrency trading, and buy-now-pay-later (BNPL) services through its Cash App and Afterpay platforms. Block’s innovative approach to financial services and its commitment to empowering individuals and businesses make it a standout player in the fintech space.
If you have curiosity about the reason of why Square changed their name to Block is because the scaled up the business quickly from being a credit card reader to the ‘Block’ of different business that is doing currently.
Capitalising on Digital Payments and Blockchain
Mainly due to covid-19, there was an important and increasing adoption of digital payments but also an extra development and interest in blockchain technology that positions Block for significant growth. Its Cash App platform continues to expand its user base, offering services such as direct deposits, fractional stock trading, and Bitcoin transactions, so the addressable market is massive.
You may notice that the performance of Block and Bitcoin are quite similar (keeping the difference of course). Block is a key player in the cryptocurrency space, facilitating Bitcoin trading and investing in blockchain-based initiatives. Its decentralised finance (DeFi) ambitions align with the growing interest in Web3 technologies, providing a long-term growth avenue.
Recent Financial Performance
In its fiscal Q3 2024 earnings report, Block Inc. posted revenue of $6.03 billion, a 24% year-over-year increase, driven by strong performance across its Cash App and Square ecosystems. Gross profit rose to $1.81 billion, reflecting a 21% year-over-year growth.
Cash App gross profit accounted for $1.13 billion, a 29% year-over-year increase, supported by higher transaction volumes and subscription-based revenues. Square’s ecosystem generated gross profit of $677 million, growing 11% year-over-year, highlighting the resilience of its core business solutions for merchants.
Block’s adjusted earnings per share (EPS) came in at $0.47, surpassing analysts’ consensus estimate of $0.45. Looking forward, the company projects revenue growth in the range of 15%-20% for fiscal Q4 2024, driven by sustained demand for its financial services and continued expansion into new markets, however we will have to see if they manage to achieve that on their next earning report which is schedule for February 27, 2025. Having a look on their website, there is a recent press release about how they surpassed their record transactions on Black Friday and Cyber Monday with over 144 millions of transactions in their system.
Analysts’ Insights and Price Targets
Looking at external sources, like the analysts opinions and reports., Block Inc. is well-regarded among Wall Street analysts. Of the 30 analysts covering the stock, 22 rate it as a “Buy,” while 7 rate it as “Hold.” The consensus 12-month price target is $100.00, while there is a high of $120.00 and a low of $65.00. The stock is currently sitting at $81.98
Notable upgrades include a “Buy” rating from JP Morgan, citing Block’s growth in the Cash App ecosystem and its ability to diversify revenue streams. Analysts also highlight Block’s investments in blockchain and DeFi as strategic moves that will strengthen its market position over the long term.
Strategic Initiatives and Partnerships
Block’s growth is underpinned by strategic initiatives that expand its ecosystem and drive user engagement. A notable development is its recent acquisition of Afterpay, a leading BNPL platform, which enhances its presence in the consumer finance space and provides cross-selling opportunities within its ecosystem. For those that don’t know, BNPL stands for Buy Now Pay Later, so basically loans of small size.
Additionally, as we mentioned before, Block is quite close to Bitcoin performance and that is because of Block’s investment in Bitcoin and blockchain innovation remains a key focus for the company. The company’s TBD business unit is working on creating an open-source developer platform for building DeFi applications, aiming to democratise access to financial services globally. They could be ahead of the game in here, the question is if it will be worth it.
Risks and Considerations
The stock is around one third of their all time high so risks is associated with this stock. Potential investors should be aware of the risks associated with investing in Block. For us, the key risks is regulatory scrutiny over cryptocurrency operations, you never know how crypto is going to end, on the moon or on the deep blue sea. The other main risks are the competition in the fintech space where Paypal is a strong opponent in the US, and macroeconomic factors that may impact consumer spending and small business activity. However, Block’s diversification across multiple revenue streams and its focus on innovation help mitigate these risks a little bit.
Why Block Inc. is Ideal for Our £10-a-Week Investment Challenge
There are plenty of reasons for us to invest in Block Inc. (SQ) as it is a stock that aligns with our strategy of targeting innovative companies with strong growth potential. Block’s leadership in digital payments, its expanding Cash App ecosystem, and its strategic focus on blockchain and DeFi make it a compelling choice for our growth-oriented portfolio.
By adding Block to our Growth Stocks Pie, we aim to capitalise on transformative trends in financial technology and digital payments. As always, our approach focuses on long-term growth, seeking to build a diversified portfolio that thrives in a rapidly evolving financial landscape. Stay tuned for our next pick as we continue this exciting journey of wealth-building through disciplined investing.
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