Future Prospects for Block in the Financial Landscape

Block (SQ) has been carving out its niche in the financial services sector, but its stock performance has not translated into robust investment returns for shareholders.

Over the past five years, this fintech company's stock has only appreciated by 32% (as of Nov. 26). In contrast, the S&P 500 has provided a total return of 107%, effectively doubling investors' initial capital.

This raises the question: Where will Block be in the next five years? Is there potential for it to provide better returns for its investors?

Enhancing Integration

Block's management is focused on improving the synergy between its two key products, Square and Cash App. Strengthening this connection aims to build a more integrated payments system that reduces reliance on major card networks such as Visa and Mastercard.

The prime objective for Block is to facilitate transactions where Cash App users can make purchases directly from Square merchants. This process could involve payment options like Cash App Pay, which directly accesses user funds, or the Cash App Card. Another innovative feature is Afterpay, a buy now, pay later service.

In these payment scenarios, Block retains a large portion of the transaction fees, potentially making it more profitable. As a growing player in the fintech space, their aim is to bypass the traditional card networks and avoid paying fees to them.

As of September 30, Block has recorded 57 million monthly users on Cash App and 24 million Cash App Card holders. Square also processed $59.9 billion in gross payment volume in the third quarter. However, with a total payment volume of $6.5 trillion during that same period, Block's market presence remains small compared to the overall industry.

Investing in Bitcoin

Jack Dorsey, the co-founder and CEO of Block, has openly expressed his enthusiasm for Bitcoin, the leading cryptocurrency. He has indicated that he considers the developments in Bitcoin to be incredibly significant.

This enthusiasm has led Block to shift its strategy to include Bitcoin-centered initiatives, such as creating a hardware wallet, manufacturing mining equipment, and developing unique applications aimed at promoting cryptocurrency adoption. As of September 30, Block has $530 million in Bitcoin on its balance sheet, initiating its first purchase in 2020.

Some skeptics may view this as a distraction from Block's primary business focus. On the other hand, supporters argue that engaging in Bitcoin aligns perfectly with Block's mission to improve financial freedom and support economic empowerment. Should Bitcoin’s value continue to rise, and if Block successfully introduces new crypto-related products, the company's overall prospects could significantly improve.

Stock Potential

Block is on a promising path, having developed two ecosystems that are increasingly valuable to their users. Furthermore, the company is experiencing a rise in profitability, thanks to improvements in operational efficiency. In 2024, Block is projected to report an adjusted operating income of nearly $1.6 billion, which marks a 344% increase compared to the previous year.

Market sentiment is growing more positive, with Block's stock surging 24% just in November (as of Nov. 26). Even after this increase, the stock continues to be attractively priced, with a price-to-sales ratio of under 2.4, significantly lower than the average valuation observed over the last five years.

Given the current trajectory of the company, it is reasonable to expect that Block's stock could outperform the S&P 500 from now until the end of 2029.

Block, Bitcoin, Finance