Where Will Block Be in 5 Years?

Block (NYSE: SQ) is establishing itself within the financial services sector, but its stock performance has not been stellar. Over the past five years, Block's shares have seen a modest increase of just 32% (as of November 26). In contrast, the S&P 500 has achieved a total return of 107%, effectively more than doubling initial investments during the same period.

As we look ahead, the question remains: where will Block be in five years? Can it start to better reward its shareholders in the future?

Strengthening Connections

Block's leadership is actively seeking ways to enhance the relationship between its two main platforms: Square and Cash App. This initiative is likely part of a broader strategy to create a more robust and self-reliant payment system, reducing reliance on dominant card networks like Visa and Mastercard.

Block aims for transactions that enable Cash App users to purchase goods from Square merchants. Payment methods might include Cash App Pay, which accesses funds directly from user accounts, use of the Cash App Card, or leveraging the buy now, pay later feature known as Afterpay.

In these scenarios, Block can retain most or all of the transaction fees. As a rising fintech player striving to disrupt the payment landscape, Block's goal is to navigate around major card networks, thus avoiding associated fees.

As of September 30, the company reported having 57 million monthly active Cash App users, along with 24 million Cash App Card holders. Moreover, Square processed a staggering $59.9 billion in gross payment volume in the third quarter. Despite this, Block still occupies a small position in the enormous payments market, with a total payment volume of $6.5 trillion in a quarter where there were approximately 7.7 billion active cards.

The Bitcoin Factor

Jack Dorsey, Block's co-founder and CEO, has made no secret of his belief in the potential of Bitcoin, the leading cryptocurrency. In 2021, he asserted, "I don't think there is anything more important in my lifetime to work on."

This optimism is steering the company towards a range of Bitcoin-related projects. These include developing a hardware wallet, creating mining equipment, and innovating payment solutions to support the adoption of Bitcoin. As of September 30, Block's balance sheet included $530 million in Bitcoin, with initial purchases starting in 2020.

While some critics view this focus on cryptocurrency as a diversion from Block's core services, proponents argue that engaging with Bitcoin aligns perfectly with Block's mission of enhancing financial freedom and promoting economic empowerment. If Bitcoin's value continues to escalate, and Block succeeds in launching additional services tailored to this growing market, the company's prospects could greatly improve.

Investment Potential

Block is a thriving business with two expanding ecosystems that are becoming increasingly relevant to its users. Additionally, the company is witnessing a rise in profitability, a result of ongoing efficiency improvements prioritized by its leadership team. Analysts predict that Block will report nearly $1.6 billion in adjusted operating income in 2024, marking a staggering 344% increase from the previous year.

Investor sentiment is shifting positively, demonstrated by a 24% rise in share prices during November (as of November 26). Even with this surge, the stock is still available at a reasonable valuation, trading at under 2.4 times its sales. This valuation is less than half of its average over the last five years.

Given Block's growth trajectory, it would not be surprising if the stock outperforms the S&P 500 by the end of 2029.

Fintech, Stock, Growth