Block's multiple ecosystems drive shares higher on 2024 outlook

Key Points

• Block operates multiple ecosystems, including Square for POS and digital payment processes; Cash App for peer-to-peer payments, shopping, and investing; and Afterpay as a buy-now-pay-later (BNPL) service.
• Cash App grew its monthly active users to 23 million, representing over 40% of the total active base in December.
• Cash App is transforming into a social bank as it grows its banking services and Cash App Card user base.

Block Inc. NYSE: SQ is a technology company with multiple ecosystems generating a network and cumulative effect. It's most known as a fintech operating its Square segment, which is a digital and point-of-service (POS) payment processing platform. Square made its mark with its tiny Square reader devices that could be attached to smartphones and tablets for small businesses to process credit card payments.

The business services sector company continued to expand into peer-to-peer (P2P) payments with its Cash App, which is similar to PayPal Inc. NASDAQ: PYPL owned Venmo, and has continued to add on more services, including buy-now-pay-later (BNPL) provider Afterpay and bitcoin trading. The company continues growing its Cash App as shares rise with bitcoin breakouts. Shares rallied 16% on its Q4 2023 earnings report despite missing EPS consensus estimates.

Ecosystems

Block has been growing its ecosystems to stay diversified. Payment processing faces numerous challenges despite its relatively wide moat. The company has consolidated many businesses into its Cash App, making it a one-stop shop for all things financial, maximizing the network effect. This includes making stock and bitcoin trades, purchasing products with BNPL payment plans, sending transfers, purchasing items, paying bills, accessing its Square Merchant Network for special discounts, attaining a Cash card and filing taxes.

For investors, owning SQ stock is akin to owning three stocks for the price of one. PayPal for a payment processing platform. Sofi Technologies Inc. (NASDAQ: SOFI) for banking services, including stock and crypto investing. Affirm Holdings Inc. NASDAQ: AFRM for BNPL services. Check out the sector heatmap on MarketBeat.

Solid growth

On February 22, 2024, Block reported Q4 2023 EPS of 45 cents per share, a 13-cent miss compared to the consensus estimates of 58 cents. Gross profits rose 22% YoY to $2.03 billion. Revenues surged 24.1% YoY to $5.77 billion to beat the $5.1 billion consensus analyst estimates. Square processed $57 billion in gross payment value (GPV), up 8% YoY. Cash App generated $3.91 billion in revenues, up 31% YoY and $1.18 billion in gross profits, up 25% YoY. Cash App GPV was $3.95 billion, down 13% YoY. The BNPL platform contributed $325 million and $242 million in gross profit versus $264 million and $196 million in the year-ago period, respectively. Adjusted EBITDA rose to $562 million compared to $281 million in the year-ago period.

Cash App growth plans

Block aims to make Cash App a social all-in-one financial platform. It aims to become a top provider of banking services to United States households with up to $150,000 in annual earnings. It plans to become a next-generation social bank. The company deprioritized global expansion to implement tighter controls to improve risk loss and introduced deliberate friction to the onboarding process. While this slowed down active growth, it allowed customers to adopt banking products earlier and receive higher limits. The Cash App Card grew 20% YoY and more than 2X the growth rate of total monthly actives.

Other ecosystems

The company also has Spiral, which builds and funds free, open-source projects. TIDAL is a global platform for musician and their fans. TBD is an open developer platform, making it easier to access Bitcoin and other blockchain technology without having to use an institutional middleman.

CEO insights

Block Chairman Square Head and Block Head Jack Dorsey focused on the Cash App roadmap, "Cash App is inherently social. We have incredible network effects through starting with peer-to-peer. And we have this opportunity to make it even more social. And really look deeply at the local payments in local commerce in particular, and that's where the intersection with Square comes into play. We're going to start putting our Square customers first and foremost in the Cash App, and you really see the power of our combined ecosystems and the combined network."

Block analyst ratings and price targets are at MarketBeat. Block's peers and competitor stocks can be found with the MarketBeat stock screener.

Daily cup and handle

The daily candlestick chart on SQ illustrates a cup and handle pattern. The cup lip line formed at $81.47 on July 31, 2023. SQ proceeded to sell off down to a $38.85 swing low on October 30, 2023. Shares were able to grind up through the daily 200-period moving average (MA) resistance at $61.16 on November 28, 2023, and rise toward the cup lip line at $80.29 on December 28, 2023, to complete the cup pattern. SQ sold off to $61.83 to commence forming the handle on January 26, 2024. SQ retested the cup lip line in a breakout attempt upon gapping on its Q4 2023 earnings report, peaking at $81.47 before falling back under the lip line. The daily relative strength index (RSI) coiled back up towards the 70-band. Pullback support levels are at $74.36, $70.60, $63.63 and $61.83.