Business

Block needs to continue to stack on solid foundation


With so many fintech stocks falling,

Block

SQ 0.58%

may be among the more certain.

Stocks of financial-technology and digital commerce companies have been hit hard as the market has turned away from growth stocks. Among them is Block, formerly known as Square. Its shares are down more than 40% so far in 2022. But it’s not quite as repressive as some of the other companies that play in those sectors, with companies like the likes of

Confirm

and Shopify are both over 70% off. Block is also trading around the same business value multiples to carry forward earnings before interest, taxes, amortization and amortization at the end of 2019; multiples for stocks like Adyen,

PayPal

and Shopify are both lower now than they were then.

One driving factor for this could be Block’s heavy exposure to in-person shopping, through its Square merchant business, which is surging as pandemic restrictions ease and E-commerce growth slows down. In the company’s first-quarter report on Thursday, it said total payment volume via the Square card – a proxy for in-store payments – rose 41 percent year-over-year in the first quarter. first. This is 20 points faster than a cardless GPV, which is usually an e-commerce transaction.

Another driver is resilience in growth for Block’s Cash App, Payments, and Consumer Finance App. What sets the Cash App apart in the minds of many investors is that it’s not just about e-commerce or shopping, but about banking digital transformation. Excluding the new addition from the recently obtained Afterpay results, Cash App gross profit increased 17% year over year in the first quarter, despite Difficult comparison with an increase in stimulus testing last year. The company still expects that the second half of 2022 will generate faster growth than the same period last year.

The Cash app makes money in several ways, one of which is when people use a debit card linked to their account. Notably, Cash Card gross profit grew 50% in the first quarter from last year, with the company saying it saw more users making everyday purchases like groceries and food. fast. It could be an indicator that people are using the Cash App similar to how they might use a checking account.

Along those lines, Block said recurring paycheck deposits into the app more than doubled in March from a year earlier. Active monthly users made an average of 21 transactions across Block’s entire ecosystem in March; that number was 18 per month in the first quarter of last year. Total quarterly cash flow to Cash App is strongest ever.

Block has an investor day later this month, and one thing investors may want is to have more perspective on how much growth can come from continued user expansion than it does. More interaction and monetization of already active users – as much as attention has changed to grow revenue per user via fintech. Part of the story for Block could be the role of recently bought again Installment payment service Postpaid in Cash App.

The block may have a solid base, but investors will still want to know how many more blocks can be built on it.

Write letter for Telis Demos at [email protected]

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