Block (SQ 0.59%) hasn't been a winning investment in the past five years, with its shares losing 12% of their value since July 2019 (as of this writing). The S&P 500, on the other hand, produced a total return of 103% during the same time. That's a huge disappointment for Block shareholders.
As this fintech stock trades 74% off its peak price, investors might be eyeing the business as a possible investment opportunity. Where will Block be in five years?
Fintech powerhouse
It's easy to see why Block is a leader when it comes to blending financial services and technology. The company, formerly known as Square, started out by catering to small merchants, allowing them to accept card payments. But this business has transformed into so much more.
The merchant-facing segment, now known as Square, offers point-of-sale hardware solutions, but it also offers various software and financial services, like marketing tools, invoicing solutions, and loans. During 2023, gross profit for Square totaled $3.1 billion, or 42% of the company's total.
Cash App, the company's consumer-facing mobile app, was launched in 2013. Individuals can use Cash App as a banking provider. There are 57 million monthly active users, and this division's gross profit growth exceeded Square's in 2023 and in the first quarter of this year.
Operating two successful ecosystems isn't enough. Management wants to better integrate the two sides to create a stronger business. One way this is being done is through Afterpay, the buy now, pay later specialist that was acquired in 2022.
I have high confidence that both Square and Cash App will still be key components of Block's operations five years from now. The leadership team estimates the total combined gross profit opportunity to be a sizable $190 billion. The strategy remains unchanged of introducing new products and services, entering new markets, and driving greater volume on the platform. Plus, Block is focused on ways to incorporate artificial intelligence to better serve its merchant base.
NYSE: SQ
Key Data Points
Bitcoin's importance
Block is attempting to blend the traditional finance world with the cryptocurrency space with its emphasis on Bitcoin. In October 2020, the business purchased the digital asset for its own balance sheet. And as of March 31, it had about $573 million in total of Bitcoin on the books.
Block's founder and CEO, Jack Dorsey, is extremely bullish on Bitcoin, thinking it will become the native currency of the internet. And he's positioning his business to take advantage of this belief. Cash App has long facilitated the trading of Bitcoin. But looking ahead, Block is hoping to get way more involved.
On the surface, it makes sense that a leading fintech enterprise, one that has a sizable presence in the payments space specifically, would be so interested in Bitcoin. The world's top crypto is a beacon of financial freedom and economic empowerment, which aligns with Block's mission.
Moreover, it's probably not a surprise that an internet entrepreneur such as Dorsey would be so interested in Bitcoin. If I had to place a wager, I'd bet that by 2029, Bitcoin will be a bigger driver of Block's financial performance. But this is likely a huge turnoff for risk-averse investors.
Is Block stock a buy?
It might be hard to figure out why Block shares have done so poorly. The business continues to put up double-digit gross profit growth, and it is now focused on achieving consistent profitability. Even more importantly, Block offers products and services that are crucial to the day-to-day lives of its users.
Shares are currently 74% off their peak. They trade at a forward price-to-earnings ratio of 21. This seems like a reasonable valuation for what looks like a quality enterprise. Over the next five years, Block stock could be a winner for your portfolio.
