Block (SQ 2.32%) has taken its investors on quite a ride over the last several years. The company enjoyed profitability followed by stellar growth in its businesses, some of which were fueled by pandemic-related behavior shifts.
In the last five years, investors who bought shares of the fintech would've seen their investment slashed in half, then skyrocket for a few years before crashing down to earth. Read on to see why Block has been so volatile and how much a $1,000 investment in the company would be worth today.
Block achieved stellar growth over the past five years
Block (formerly known as Square) was founded in 2009 and offered hardware and software services to help small and medium-sized businesses accept credit card payments from customers using smartphones or tablet computers as a register for a point-of-sale system. Along with the hardware sales, the company charges a transaction fee based on a percentage of the total transaction amount processed and earned $5.7 billion in net revenue from this part of its business last year.
Block has since expanded its reach and launched additional products like the Cash App, which allows customers to send and receive money, and a suite of other built-in financial services. It also owns Afterpay, a buy now, pay later company. These two businesses contribute to its subscription and service-based revenue, which was $4.5 billion last year.
Block also allows customers to purchase Bitcoin and earns fees from customers for each transaction it facilitates. This part of its business has grown staggeringly in recent years and accounted for $7.1 billion in revenue last year.
Block achieved exceptional growth over the past five years, growing its transaction-based revenue at 25% annually while its total net revenue expanded 51% compounded annually.
If you invested $1,000 in Block five years ago ...
You would've experienced a wild ride if you invested in Block stock five years ago. Block's stock went on an incredible run from 2020 to 2021. During this time, we were amid the COVID-19 pandemic, and companies significantly shifted toward contactless payments. Not only that, but the price of Bitcoin skyrocketed, going from around $9,000 to over $60,000 in less than a year, fueling rapid growth to Block's Bitcoin-based business.
If you invested $1,000 in Block stock five years ago, your investment would've fallen to $487 during the pandemic-induced sell-off in March 2020. Then, your investment would've risen to $3,605 in mid-2021 before crashing back down to earth. Today, that initial investment would be worth just $715.
SQ Total Return Level data by YCharts.
Why Block stock stalled out
As Bitcoin rose in value, so did Block's revenue. In 2019, the company generated $516.5 million from fees from people purchasing Bitcoin through its app. In 2020, the figure increased nearly eightfold to $4.6 billion and more than doubled to $10 billion in 2021. While this wasn't the only part of Block's business that grew, it was the most substantial.
Despite this incredible revenue growth, Block's expenses rose even quicker, and its earnings decreased in each of the last four years. In 2019, Block's net income peaked at $375 million. It has declined every year since then, and it posted a $541 million net loss last year.
Block incurred ballooning expenses in recent years as it works to expand its reach and product offerings. This increase also includes a sizable increase in share-based compensation, which was over $1 billion last year.
Its depressed stock price could be an excellent investment opportunity
Block stock took a hit over the last few years as investors punished it for its declining earnings. However, the sell-off could present an intriguing opportunity for long-term investors. Today, the stock trades at 1.7 times sales, near Block's lowest valuation since it went public.
SQ P/S Ratio data by YCharts.
Block has a strong product portfolio that has grown at a nice rate over several years. It continues to grow its merchant business nicely. In the first half of 2022, Square's gross profit grew 18% from last year. Meanwhile, the Cash App segment saw a 37% in gross profit compared to last year.
Block did an excellent job of growing its core business -- allowing small and mid-sized companies to accept card payments -- while also expanding to other financial offerings through its Cash App. The stock has taken investors on a roller coaster primarily because of its fluctuating bottom line. However, this volatility has the company near its lowest valuation ever, making today a good time to add some shares of Block stock.
