Block / Square Stock Analysis (with latest ER)

Q1 2022 Highlights

• Generated gross profit of $1.29 billion, up 34% year over year.
• Cash App generated gross profit of $624 million, up 26% year over year.
• Square generated gross profit of $661 million, up 41% year over year.
• As of the end of the first quarter, more than 10 million Cash App accounts have bought bitcoin since the product was introduced.
• Square’s midmarket sellers demonstrated strong momentum in the first quarter, with gross profit up 47% year over year, outpacing total Square gross profit.

Products

Square

• Commerce solutions: point of sale, online store, and payments.
• Customers solutions: loyalty programs, email & SMS marketing, and message hubs.
• Banking solutions: checking, saving, loans.
• Staffing solutions: team management and benefits software.

Cash App

• Cash App is a mobile payment service that allows users to transfer money to one another like Venmo.

Afterpay

• “Buy now, pay later” solution.

Catalysts

• Gross profit in markets outside the U.S. is doubled to 78M (from 39M), which is 12% (from 8%) of total gross profit.
• Excluding bitcoin and Afterpay, revenue was $2.10 billion, up 36% year over year and up 40% on a two-year CAGR basis.
• Block is led by visionary founder, Jack Dorsey, who is intent on making strategic long-term investments
• Block has a bank charter that can perform all banking services such as loans

Risks

• Operating expenses increase much faster than growth profit. (+70% vs +34%)
• 2022 Q1 gross profit only grow 25% excluding Afterpay. Square’s gross profit is flattening.
• The network effect is relatively weak since it is mainly a tool.
• Block has many competitors among all of its products
• Small sellers (<$125K Annualized GPV) decreases from 16.1B to 13.8, which means fewer new customers are joining

Conclusion

Block is one of the most competitive and innovative companies that offer a wide range of financial tools/solutions.

Bullish in long term

• Under its visionary founder, Block’s goal of building a complete ecosystem in the fragmented fintech industry has been executed very well.

Neutral in short term

• Current economic headwinds are not good for companies like Block, which earns money mainly from each transaction.