As we enter Week 10 of our £10-a-week investment challenge, we’re revisiting Block Inc. (NYSE: XYZ), formerly known as Square. Following their recent earnings report on February 20, 2025, Block has demonstrated significant growth and resilience, reaffirming its position as a strong contender in the digital payments sector.
Company Overview
Block Inc. is a diversified financial technology company that offers a range of services, including the Square platform for merchants, Cash App for peer-to-peer payments, and Afterpay, a leading Buy Now, Pay Later (BNPL) service. These platforms collectively empower individuals and businesses to participate seamlessly in the digital economy.
Recent Financial Performance
In Q4 2024, Block reported a gross profit of $2.31 billion, meeting analyst expectations. The Cash App segment saw a 16% year-over-year increase in gross profit, while the Square segment experienced a 12% rise. However, the company reported earnings of $0.71 per share, missing the consensus estimate of $0.83.
Despite this earnings miss, Block’s overall performance indicates robust growth, with a focus on expanding its user base and enhancing service offerings.
Forward P/E Ratio
As of February 28, 2025, Block’s forward Price-to-Earnings (P/E) ratio stands at 14.24 for 2025 while for 2026 is just 11.87. That is quite low compared to S&P500 index which is nearly 30, or the NASDAQ average P/E sitting around 42.
This metric suggests that investors are willing to pay $14.24 for every dollar of expected future earnings. If Block were to have the S&P500 P/E ratio of 30, the stock would be at $135.30, while to match the NASDAQ average P/E of 42, the stock would be at $189.42 per share, that is nearly triple the current stock price!
Strategic Focus: Buy Now, Pay Later (BNPL)
Block’s acquisition of Afterpay has positioned the company to capitalize on the growing BNPL market, which is projected to surpass $160 billion by 2032.
The integration of Afterpay into Block’s ecosystem is expected to drive significant revenue, appealing to younger, digital-native consumers seeking flexible payment options.
The BNPL service not only enhances consumer purchasing power but also increases merchant sales, creating a symbiotic relationship that fosters growth across Block’s platforms.
The most important bit about BNPL, is that it has just been rolled out recently, meaning that last quarter earnings didn’t show much revenue of this, so next quarters will be key.
Analyst Perspectives and Price Targets
Following the recent earnings report, analysts have adjusted their outlook on Block Inc. The stock experienced a nearly 20% decline in after-hours trading, attributed to the earnings miss and concerns over consumer spending trends.
Despite this, the company’s diversified portfolio and strategic initiatives, particularly in the BNPL space, are viewed as potential drivers for future growth and most of the price targets review have been raised leaving the average price target for Block (XYZ) on $97.81 with a bullish case on $125 and a bearish on $63, so even the bearish case is where we are sitting now.
Competitive Landscape
Block operates in a highly competitive environment, facing challenges from established players like PayPal, Visa, and Mastercard, as well as emerging fintech companies. However, Block’s unique combination of merchant services, peer-to-peer payments, and BNPL solutions provides a comprehensive ecosystem that differentiates it from competitors. Their CEO is also focussing in a Bitcoin environment, so the recent losses on the cryptocurrency may also explain the fall.
Risks and Considerations
Investors should be mindful of potential risks, including:
- Regulatory Scrutiny: The BNPL sector is attracting increased regulatory attention, which could impact operational practices.
- Consumer Spending Trends: Macroeconomic factors, such as high interest rates and political uncertainty, may influence consumer spending behaviors.
- Integration Challenges: Effectively integrating Afterpay and other acquisitions into Block’s existing infrastructure is crucial for realizing projected synergies.
Conclusion
Revisiting Block Inc. for our £10-a-week investment challenge aligns with our strategy of investing in innovative companies poised for growth. The company was already a growth company with massive potential and its commitment to expanding its BNPL services, combined with a solid financial foundation and strategic vision, positions it well to capitalise on emerging opportunities in the digital payments landscape.
As always, it’s essential to conduct thorough research and consider your financial situation before making investment decisions.
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