With Square for merchants and Cash App for individuals, Block (SQ -0.25%) operates two thriving ecosystems. These two segments are leaders in their respective markets, a standing that has led to this business carrying a $45 billion market cap.
Since its initial public offering in 2015, this top fintech stock has doubled the gain of the Nasdaq Composite Index. However, it's currently 74% below the peak price set in August 2021 (as of May 17).
Some investors might think this makes Block a once-in-a-generation buying opportunity. I think this perspective has merit, but that's only if you're also bullish on a top cryptocurrency.
Bullish on Bitcoin
In 2021, Block co-founder and CEO Jack Dorsey publicly stated his support of Bitcoin (BTC -0.10%), saying he'd be working solely on this crypto if he wasn't then working at the payments company or Twitter (now called X). This was probably a shock to many.
More recently, there appears to be a renewed focus on Bitcoin. In the company's first-quarter 2024 shareholder letter, Dorsey started things off by explaining what Block's Bitcoin strategy is. It all centers on his firm belief that a world that becomes more digital will require a decentralized currency that's native to the internet.
The business plans to design, build, and sell crypto mining equipment. With Spiral and TBD, two Bitcoin divisions, the goal is to make crypto more useful in people's day-to-day lives and to disrupt cross-border payments, respectively.
Block will also continue to periodically invest in Bitcoin for its own balance sheet.
CRYPTO: BTC
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Financial implications
Cash App started allowing users to trade Bitcoin in 2018. But to be clear, the company only generated $80 million of its Q1 2024 gross profit of $2.1 billion from facilitating the buying and selling of Bitcoin. Block still makes the vast majority of its money from the hardware, software, and financial services that it offers merchants via Square, as well as from the features that Cash App provides to customers.
But it's important to try to understand what the financial implications might be. 10 years from now, Block could essentially be leveraged to the price performance of Bitcoin, particularly as it rakes in revenue from a potentially wide range of Bitcoin-related endeavors.
What if Bitcoin doesn't catch on as Jack Dorsey hopes it will? First of all, we won't know the answer to this question for quite some time, as many believe we are still very early when it comes to Bitcoin's development. However, I think Block's core operations would still be on solid footing.
It's similar to watching Mark Zuckerberg, founder and CEO of Meta Platforms, invest so heavily behind metaverse ambitions with Reality Labs. No one has any idea if or when this will pay off. But the main social media apps are still an incredibly successful segment on their own.
NYSE: SQ
Key Data Points
No Block without Bitcoin
Investors who were looking at Block as a smart way to play the software and digital payments trends need to think long and hard about whether they are also bullish on Bitcoin. That requires another step in your research process.
I can see how this is a huge red flag for some investors who want Dorsey and his team to remain focused on the main goal of servicing the financial needs of its merchants and customers with great products and services. These critics argue that Bitcoin should be excluded from this strategy.
But on the other hand, there are clear reasons why Dorsey is positioning Block this way. Bitcoin can help Block fulfill its mission of increasing financial freedom and economic empowerment. It makes sense that the fintech enterprise would be working on ways for the world's top digital asset to gain greater adoption.
I'm bullish on Bitcoin. And I'm also optimistic about Block's long-term trajectory. So perhaps this is indeed a once-in-a-generation investment to buy and hold for the next decade.
