What happened
Shares of financial technology (fintech) company Block (SQ -1.57%) fell on Thursday following disappointing retail sales data from the Census Bureau. For those who may not know, a large portion of Block's business is dependent on brick-and-mortar retail. And that's why the stock was down 7% and falling as of 1 p.m. EST.
So what
According to data from the Census Bureau released this morning, U.S. retail and food-service sales were down -0.6% in November compared to October. And even excluding gas station sales, November retail was still down 0.6%. That's worse than what many economists projected and why the S&P 500 was down a sharp 2.8% as of this writing.
Block generates a lot of revenue from Bitcoin. But it doesn't make a profit from it, so let's exclude it for the sake of discussion. Excluding Bitcoin revenue, Block generated 64% of its revenue from its Square ecosystem in the third quarter of 2022. The Square ecosystem provides products and services for merchants. And 60% of Q3 gross payment volume on the Square ecosystem came from merchants with $500,000 or less in annualized payment volume.
In other words, a large part of Block's business relies on relatively small retailers. And with discouraging retail data for November, Block stock consequently fell today.
Now what
The good news for Block shareholders is that the company isn't 100% reliant on fintech solutions for merchants; it has the Cash App ecosystem for consumers as well. And that side of the business is still seeing outsized growth.
Moreover, even if retail sales fall in the U.S., Block can still grow revenue with its Square ecosystem by adding more customers, as merchants adopt more solutions, and with international expansion. Therefore, I'd say that the market reaction today was overdone.
