Block Needs to Keep Stacking on Solid Foundation
Shares of the fintech company aren’t quite as hard hit as many peers, but continuing expansion of Cash App will be critical
By Telis Demos
Wall Street Journal
May 6, 2022 11:37 am ET
With so many fintech stocks tumbling, Block SQ 0.67% may be among the sturdier ones.
Financial-technology and digital-commerce companies’ shares have been hit hard by the market’s turn against growth stocks. Among them is Block, formerly known as Square. Its shares are down more than 40% so far in 2022. But it isn’t quite as downtrodden as some others that play in those realms, with companies such as Affirm and Shopify both down more than 70%. Block is also trading around the same multiple of enterprise value to forward earnings before interest, taxes, depreciation and amortization it was at the end of 2019; multiples for stocks such as Adyen, PayPal and Shopify are all now lower than they were at that point in time.
One driver of this may be Block’s big exposure to in-person shopping, via its Square seller business, which has been rising sharply as pandemic restrictions recede and e-commerce growth slows. In the company’s first-quarter report on Thursday, it said Square card-present gross payment volume—a proxy for in-store payments—grew by 41% year-over-year in the first quarter. That was 20 points faster than card-not-present GPV, which are often e-commerce sales.
Another driver is resilience in growth for Cash App, Block’s consumer-finance and payments app. What distinguishes Cash App in many investors’ minds is that it isn’t just a play on e-commerce or shopping, but also on banking’s digital transformation. Excluding the new addition of recently acquired Afterpay’s results, Cash App’s gross profit grew 17% on-year in the first quarter, despite a tough comparison with the stimulus check surge last year. The company is still expecting that the second half of 2022 will generate faster year-over-year growth.
Cash App makes money in several ways, one of which is when people use debit cards linked to their accounts. Notably, Cash Card gross profit was up 50% in the first quarter over last year, with the company saying it saw many users making day-to-day purchases like groceries and fast food. That may be an indicator that people are using Cash App similar to how they might use a checking account.
Along those lines, Block said that recurring paycheck deposits into the app were up 2½ times in March from a year earlier. Monthly transacting active users made 21 transactions on average across Block’s ecosystem in March; that figure was 18-per-month during the first quarter last year. Quarterly total inflows into Cash App were the strongest ever.
Block has an investor day coming up later this month, and one thing investors might want is more perspective on how much growth can come from continuing user expansion versus further engagement and monetization of already-active users—much as attention has shifted to per-user revenue growth across fintech. Part of the story for Block is likely to be the role of recently acquired installment payments service Afterpay in Cash App.
Block may have a solid base, but investors will still want to know how much more can be built on top of it.
Write to Telis Demos at telis.demos@wsj.com
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Appeared in the May 7, 2022, print edition as 'Block Needs A Solid Foundation.'
Block Needs to Keep Stacking on Solid Foundation - WSJ |
