Block stock analysis. SQ stock.
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Block (formerly known as Square) has caught the attention of investors for a number of reasons.
Number one, it’s seen incredible revenue growth as it attempts to disrupt the lucrative payments industry. Number two, its CEO is Jack Dorsey, the co-founder of Twitter. And number three the stock has been exceptionally volatile. It’s crashed 80% since its all-time high but its still up more than 350% since its IPO back in 2015.
That share price gives Block a market cap of 36 billion dollars. With 6.5 billion of cash and investments and 4.1 billion of long-term debt, the enterprise value is roughly 34 billion.
Revenue at Block had been growing at a rapid rate of over 50% a year but last year saw an unexpected drop of 1% coming in at 18.6 billion for the last 12 months.
And the company is not yet profitable. EBITDA was negative 40 million and net income was minus 365 million. A lot of that is due to heavy stock-based compensation which comes in at 1.1 billion.
Revenue at Block is split out into 4 buckets:
● Bitcoin revenue, linked to Block’s Cash App totaled $7.5b and makes up 40% of the total
● Transaction-based revenue was $5.9b, 32% of the total
● Subscription and services made $5b (27% of the total)
● And hardware was $0.2b (1% of the total)
Although revenue is impressive it’s important to consider profitability.
Subscriptions is the most profitable segment with 80% gross margins and transaction-based revenues has a 37% gross margin.
But bitcoin revenue, despite being the largest revenue driver has a gross margin of 0.02%, meaning it barely contributes any profits, and the final segment hardware, has a negative gross margin.
But let’s assume that Block can return to growth and lets assume its transaction and subscription revenues can compound at 10% a year for the next 10 years.
If it can operate at a similar net margin as PayPal of 15% that would see the company produce 4.2 billion of net income in 10 years time. A 25 times multiple on that figure gets us to a market cap of 105 billion which works out to an investment return of 11.3%.
#stocks #investing #stockstowatch #blockstock
I've started a newsletter to find overlooked, actionable stock ideas:
https://www.overlookedalpha.com
Block (formerly known as Square) has caught the attention of investors for a number of reasons.
Number one, it’s seen incredible revenue growth as it attempts to disrupt the lucrative payments industry. Number two, its CEO is Jack Dorsey, the co-founder of Twitter. And number three the stock has been exceptionally volatile. It’s crashed 80% since its all-time high but its still up more than 350% since its IPO back in 2015.
That share price gives Block a market cap of 36 billion dollars. With 6.5 billion of cash and investments and 4.1 billion of long-term debt, the enterprise value is roughly 34 billion.
Revenue at Block had been growing at a rapid rate of over 50% a year but last year saw an unexpected drop of 1% coming in at 18.6 billion for the last 12 months.
And the company is not yet profitable. EBITDA was negative 40 million and net income was minus 365 million. A lot of that is due to heavy stock-based compensation which comes in at 1.1 billion.
Revenue at Block is split out into 4 buckets:
● Bitcoin revenue, linked to Block’s Cash App totaled $7.5b and makes up 40% of the total
● Transaction-based revenue was $5.9b, 32% of the total
● Subscription and services made $5b (27% of the total)
● And hardware was $0.2b (1% of the total)
Although revenue is impressive it’s important to consider profitability.
Subscriptions is the most profitable segment with 80% gross margins and transaction-based revenues has a 37% gross margin.
But bitcoin revenue, despite being the largest revenue driver has a gross margin of 0.02%, meaning it barely contributes any profits, and the final segment hardware, has a negative gross margin.
But let’s assume that Block can return to growth and lets assume its transaction and subscription revenues can compound at 10% a year for the next 10 years.
If it can operate at a similar net margin as PayPal of 15% that would see the company produce 4.2 billion of net income in 10 years time. A 25 times multiple on that figure gets us to a market cap of 105 billion which works out to an investment return of 11.3%.
#stocks #investing #stockstowatch #blockstock
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NewsTranscript
00:00 Block, formerly known as Square, has caught the attention of investors for a number of
00:04 reasons. Number one, it's seen incredible revenue growth as it attempts to disrupt the
00:09 lucrative payments industry. Number two, its CEO is Jack Dorsey, the co-founder of Twitter.
00:15 And number three, the stock has been exceptionally volatile. It's crashed 80% since its all-time
00:21 high but it's still up more than 350% since its IPO back in 2015. That share price gives
00:28 Block a market cap of $36 billion. With $6.5 billion of cash and investments and $4.1 billion
00:35 of long-term debt, the enterprise value is roughly $34 billion. Revenue at Block have
00:41 been growing at a rapid rate of over 50% a year but last year saw an unexpected drop
00:46 of 1%, coming in at $18.6 billion for the last 12 months. And the company is not profitable.
00:53 EBITDA was -$40 million and net income was -$365 million. A lot of that is due to heavy
01:00 stock-based compensation which comes in at $1.1 billion.
01:04 Revenue at Block is split into four buckets. Bitcoin revenue linked to Block's Cash app
01:09 totaled $7.5 billion and makes up 40% of the total. Transaction-based revenue was $5.9
01:16 billion which is 32% of the total. Subscription and services made $5.0 billion, 27% of the
01:23 total and hardware was $0.2 billion, 1% of the total. Although revenue is impressive,
01:29 it's important to consider profitability. Subscriptions is the most profitable segment
01:33 with 80% gross margins and transaction-based revenues has a 37% gross margin. But Bitcoin
01:41 revenue, despite being the largest revenue driver, has a gross margin of 0.02%, meaning
01:47 it barely contributes any profits at all. And the final segment hardware has a negative
01:52 gross margin.
01:53 But let's assume that Block can return to growth and let's assume its transaction and
01:57 subscription revenues on their own compound at 10% a year for the next 10 years. If it
02:03 can operate at a similar net margin as PayPal at 15%, that would see the company produce
02:09 $4.2 billion of net income in 10 years time. A 25 times multiple on that figure gets us
02:14 to a market cap of $105 billion which works out to an investment return of 11.3%. Crucially
02:21 that's without any contribution from Block's cash app. If you were to include future profits
02:27 from cash app then the returns could be much higher.
02:30 However before buying shares in Block there are a number of red flags to consider. Hindenburg
02:35 Research released a long and scathing report accusing Block of inflating the user numbers
02:40 of its cash app. The short seller reported that cash app has barely any compliance and
02:45 it's become the payment system of choice for criminals.
02:48 Block CEO Jack Dorsey is also an interesting character. Last year he pushed through a $240
02:54 million acquisition of Kanye West's company Tidal despite the majority of shareholders
02:59 being against the deal. This ended up in a lawsuit which Dorsey won.
03:04 Overall Block has some promising technology but when you put all the red flags together,
03:09 the stock based compensation, the drop in revenue, the short seller report and the actions
03:13 of the CEO, it's best to steer clear of this stock. For these reasons I give the stock
03:18 a negative rating but these are my personal opinions not financial advice and I hold no
03:23 position in Block.