What’s Next For Block Stock?

Block Inc. (NYSE: XYZ) (formerly Square), a fintech company providing digital payments, point-of-sale solutions, and a growing array of financial services including loans and banking, recently announced its Q1 earnings. The results fell significantly short of expectations, with the company reporting earnings per share of $0.47 on sales of $5.8 billion, compared to consensus estimates of $0.97 and $6.2 billion, respectively.

The disappointing earnings figure, coupled with a guidance cut, triggered a sharp negative reaction for the stock in the market. Consequently, Block’s stock price plummeted 20% on Friday, May 2nd, and is now down a substantial 46% year to date, reflecting investor concern over the company’s recent performance. Now, if you are seeking an upside with a steadier ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P and achieved returns of over 91% since its inception.

How Did Block Perform In Q1?

Block’s revenue totaled $5.8 billion in Q1, representing a 3.1% year-over-year decline. Examining revenue segments, transaction revenue saw a modest increase of 2.6% to $1.6 billion, while subscription and services revenue exhibited the strongest growth, climbing 12.4% to $1.9 billion. In contrast, hardware revenue decreased by 11.7% to $29 million, and Bitcoin-related revenue fell by 15.7% to $2.3 billion.

Despite the overall revenue decrease, key performance indicators showed positive trends. Gross Payment Volume (GPV) reached $56.8 billion, a 4.4% year-over-year increase, and EBITDA rose by 15.3% to $813 million compared to the same quarter last year.

Block also experienced a significant surge in profitability during Q1, with adjusted operating margins expanding to 20%, a 300 basis point improvement from the prior year. Consequently, earnings per share increased by 19% to $0.56. However, the company’s guidance indicates ongoing challenges. For Q2, Block anticipates gross profit to increase by 9.5% to $2.45 billion, below the anticipated $2.54 billion, and projects an operating margin of 18%. The company attributed these weaker-than-expected figures to a soft macroeconomic environment, reduced consumer spending, and lower inflows.

What Does It Mean for Block Stock?

Block’s shares dropped 20% following the release of its Q1 results. However, such volatility is not unusual for Block stock. Over a slightly longer timeframe, XYZ stock has consistently underperformed the broader market, with returns of -26% in 2021, -61% in 2022, 23% in 2023, and 10% in 2024.

In contrast, the Trefis High Quality Portfolio, which comprises 30 stocks, is notably less volatile. It has comfortably outperformed the S&P 500 over the past four years. Why is that? As a group, HQ Portfolio stocks have delivered better returns with lower risk compared to the benchmark index, offering a less turbulent ride, as evidenced by the HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment, characterized by tariffs and trade wars, could XYZ face a similar scenario as in the past four years and underperform the S&P over the next twelve  months—or will it experience a recovery?

Despite recent disappointing results, Block’s stock, currently trading around $46, has a price-to-sales ratio of 1.2x, significantly below its four-year average of 2.8x. We believe this current valuation adequately discounts the challenges Block is navigating, such as increased competition from Venmo and current consumer spending patterns, as well as its recent performance. Consequently, we see the present stock price as an attractive opportunity for substantial long-term returns.

While Block stock appears to have growth potential, it is useful to compare its performance with that of its peers on key metrics. You can find additional valuable comparisons for companies across various industries at Peer Comparisons.

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