Where Will Block Be in 5 Years?

Block (SQ) has gained visibility in the financial services industry. However, despite its potential, the stock has not been a strong performer in the investment realm.

Over the last five years, Block's stock price has risen only 32% as of November 26. In comparison, the S&P 500 index has delivered a remarkable total return of 107%, which more than doubles initial investments.

This raises the question: where might Block be in five years? Will it enhance shareholder value?

Strengthening Connections

Block's management is actively exploring ways to deepen the link between its Square and Cash App services. This strategy aims to create a more robust and independent payment system, less dependent on major networks like Visa and Mastercard.

The ideal scenario for Block involves a Cash App user making purchases from a Square merchant. Payment methods could include Cash App Pay, which directly withdraws funds from the user's account, the Cash App Card, or the buy-now, pay-later option known as Afterpay.

In these cases, Block stands to collect nearly all of the transaction fees. As a dynamic fintech company seeking to transform the payments industry, finding ways to reduce reliance on major card networks is a key objective.

As of September 30, Block reported having 57 million monthly Cash App users and 24 million Cash App Card holders. Square processed $59.9 billion in gross payment volume in the third quarter. Given that the overall payment industry sees a staggering $6.5 trillion in transaction volume, Block's operations represent only a small fraction of the larger market.

Investing in Bitcoin

Jack Dorsey, one of Block's co-founders and the current CEO, has been an outspoken supporter of Bitcoin. He boldly stated in 2021, "I don't think there is anything more important in my lifetime to work on."

This enthusiasm for Bitcoin has shifted Block’s strategic focus, leading to various initiatives in the crypto space, including developing hardware wallets, mining equipment, and innovative payment solutions that promote Bitcoin usage. As of September 30, Block held approximately $530 million in Bitcoin, having made its first purchase in 2020.

While some critics see this focus on cryptocurrency as diverting from Block’s core mission, proponents argue that it aligns perfectly with Block's goals of enhancing financial freedom and promoting economic empowerment. Should Bitcoin's value continue to rise and Block expand its related offerings, the company's overall business prospects could improve significantly.

Stock Outlook

Block is positioning itself well with two growing ecosystems that are gaining importance for its users. Furthermore, the company is beginning to see profit growth due to ongoing efficiency improvements implemented by its leadership. Analysts anticipate that Block will report nearly $1.6 billion in adjusted operating income for 2024, reflecting an impressive 344% increase compared to the prior year.

Investor sentiment appears optimistic, evident in a 24% increase in its share price in November alone. Even after this rise, the stock remains attractively priced, trading at a price-to-sales ratio of under 2.4. This valuation is notably lower than the average over the past five years.

Given Block's current trajectory, there is a strong possibility that its stock will outperform the broader S&P 500 index by the end of 2029.

Block, Finance, Bitcoin