Block Stock Is A Gem Hiding In Plain Sight

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  • The market is past pegging Block stock to the crypto market as shares rise while crypto-exposed stocks like Coinbase and Robinhood proceed to fall from the FTX disaster.
  • Back out the Bitcoin business, and Block grew Q3 2022 top line by 36% YoY.
  • Despite projections of a weak holiday 2022 shopping season, its Afterpay BNPL service was a boon to cash-strapped consumers and may reflect nicely in its Q4 2022 earnings report.
  • Investors are getting three eco-systems in a single stock: payments processing, brokerage, and consumer finance and banking services.
  • Square Financial Services has an FDIC banking charter making it a bank collecting interest-rate income from customer deposits, whereas PayPal doesn’t.
  • 5 stocks we value more highly than Block

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Merchant and consumer financial ecosystems provider Block Inc. (NYSE:SQ) stock starts the yr off with a 6.7% gain after tanking a (-52%) tumble in 2022. Analysts consider the worst could also be over regarding negative sentiment. While crypto brokers like Coinbase Global Inc. (NASDAQ:COIN) and Robinhood Markets Inc. (NASDAQ:HOOD) proceed to suffer stock declines attributable to the FTX scandal, Block doesn’t appear to be affected.

Block has no exposure since its brokerage services only allow bitcoin trades and exclude other cryptos, especially the more obscure ones which might be liable to fraud. The market could have looked past Block’s bitcoin exposure and embraced the expansion of its core ecosystems Square and $Money App, that are growing at a 36% YoY rate. Its outperforming rival PayPal Holdings Inc. (NASDAQ:PYPL) in 2023 as sentiment improves.

Its partnership for its Afterpay buy-now-pay-later (BNPL) service with the Shopify Inc. (NYSE:SHOP) merchant network should reflect a robust upside as Shopify saw a 16% YoY surge through the Black Friday weekend.

Market Maker of Ecosystems

Block modified its name from Square to reflect its role because the operator, connector, and market maker between its ecosystems. Its two major ecosystems are merchants and sellers through Square and consumers and buyers through $Money App. Bitcoin and stock trading services are a part of the $Money App ecosystem.

Connecting $Money App consumers to Square merchants acts as a market maker by taking a fee on each side. $Money App also has consumer banking and financial products with its Money Card.

One-Stop Financial Shop

$Money App users can send money peer-to-peer, buy stocks or bitcoin, use a debit card for purchases, funds purchases through its Afterpay BNPL service, and use banking services and money management services like Round-up, which rounds up transactions to the closest dollar to speculate robotically.

$Money App is attempting to be a one-stop service shop for all things financial. It also has a discover function that introduces merchants in its Square merchant network to  $Money App users amplifying the network effect.

FDIC Bank Charter

Square Financial Services was the primary U.S. fintech to receive an FDIC charter to operate its own bank as an industrial loan company (ILC), which it received on March 18, 2020, through the pandemic.

The last ILC charter was granted a decade before. The ILC charter enables non-bank-owned firms to offer deposit and lending services to consumers without being subject to federal bank holding company regulations making it a shadow bank. Bank deposits are FDIC insured. It’s a vital distinction that PayPal doesn’t have a banking charter; Square does.


Symmetrical Triangle Breakout

SQ shares are trying to interrupt out of its weekly symmetrical triangle, comprised of a falling upper trendline and a rising lower trendline. The stock will make lower highs and better lows as steam construct for a breakout through the upper trendline or break down the lower trendline because it gets closer to the apex point.

There’s also a possible seed wave pattern set-up comprised of two higher sequential market structure low (MSL) buy triggers. The weekly swing low formed at $51.34 as shares have been making lower highs on bounces and better lows on pullbacks.

The primary MSL trigger #1 formed on a breakout through $59.74. The second MSL #2 triggers on a breakout through the $68.99. The seed wave triggers the breakout through $75.55. If the seed wave forms, then upside targets are often called potential reversal zones (PRZs) where Fibonacci (fib) extensions are applied. The PRZs are $82.34 (1.27 fib), $85.84 (1.414 fib), and $90.80 (1.618 fib).

Longs can look to lock profits near the PRZs, while short sellers will search for price reversals near them. The weekly stochastic has a mini pup which could drive shares higher as bullish volume can be rising. Pullback support levels sit at $63.81, $59.74 MSL #1 trigger, $57.09, $53.97, $51.34 swing low, and $49.25. These support levels might be monitored in case shares tank in response to its Q4 2022 earnings results.

Still Growing

On Nov. 3, 2022, Block reported its Q3 2022 earnings for the quarter that ended September 2022. The Company reported earnings-per-share (EPS) profits of $0.42, beating consensus analyst estimates of $0.23 by $0.19. Revenues grew 17.6% year-over-year (YoY) to $4.52 billion beating the $4.47 billion consensus analyst estimates.

Gross profit rose 38% YoY to $1.57 billion. The $Money App generated $2.68 billion in revenues and $774 million in gross profits, up 51% YoY, including its BNPL platform. Its BNPL platform contributed $105 million in revenues and $75 million in gross profits to $Money App within the quarter.

Cost Cutting Measures

The Company is cutting expenses by significantly moderating its pace of hiring in 2023. It’s also cutting back on its sales and marketing expenses and scaling back on low ROI brand awareness investment activities across each $Money App and Square ecosystems.

Analyst Actions

On Nov. 22, 2022, Macquarie upgraded its rating from Neutral to Outperform with a $100 price goal for shares of SQ. On Dec. 13, 2022, Piper Sandler resumed coverage with an Chubby rating and a $93 price goal. On Jan. 3, 2023, Robert W. Baird upgraded SQ to an Outperform from Neutral rating, raising its goal price to $78 from $62.

Analyst David Koning commented, “Square is a premier large-cap growth franchise with each profitability and net money, benefiting from macro trends similar to rising rates and inflation.” He likes the $5 billion money balance because the $3 billion in customer funds balance equating to almost $160 million on interest income added in 2023 with a 2% rate of interest hike in 2023.

The MarketBeat MarketRank™ Forecast tool indicates a possible 62.8% price goal upside with projected earnings growth from (-$0.67) to $0.11 per share and a pair of.5 stars out of 5 rating. The analyst rating rating is 2.82, which is a Moderate Buy.

Do you have to invest $1,000 in Block without delay?

Before you concentrate on Block, you will need to listen to this.

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients every day. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to purchase now before the broader market catches on… and Block wasn’t on the list.

While Block currently has a “Moderate Buy” rating amongst analysts, top-rated analysts consider these five stocks are higher buys.

Article by Jea Yu, MarketBeat

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