Fintech specialist Block (XYZ 0.95%) recently reported its fourth-quarter and full-year 2024 financial results, and the market was not impressed, to say the least. The company's shares dropped significantly on the heels of this latest quarterly update. However, analysts on Wall Street seem to think that was an overreaction.
Based on Block's current average price target of $95.75 (according to analysts tracked by Yahoo! Finance), the company's shares could soar by about 47%. Should investors buy the Street's optimism and pick up Block's shares on the dip?
Why Block's results were disappointing
First, let's review what Block does. The company became famous for offering sleek, convenient point-of-sales systems to small and medium-sized businesses. The financial services company has evolved past this stage. Block provides various products to businesses through its Square (its former name) ecosystem, including payroll, marketing, banking services, and more. Block also owns a peer-to-peer (P2P) payment app, Cash App, which competes with banks by offering prepaid debit cards, stock and crypto trading services, direct deposits, small loans, and more.
Though it has had some success, Block is increasingly dealing with stiff competition affecting its financial results.
NYSE: XYZ
Key Data Points
Block's shares dropped after its fourth-quarter update because its top- and bottom-line results were short of analyst expectations. The company's revenue grew by only 4.5% year over year to about $6 billion. Block's top line isn't growing as fast as it once was. Gross profit rose by 14% year over year (matching the company's guidance) to $2.3 billion, with the Cash App and Square ecosystems seeing decent performances in this department. Block's adjusted earnings per share were $0.71 for the quarter, representing a 51% increase compared to the year-ago period.
Block's long-term prospects
It will be challenging for Block to meet analysts' average price target in the next year. Strong financial results in coming quarters could provide potential catalysts, but the company doesn't seem particularly likely to deliver blowout results of the kind that will send its stock price soaring. Block expects its gross profit for 2025 to grow by about 15% year over year to $10.2 billion. That's not bad, but it won't lead to the kinds of returns Wall Street expects in the next 12 months.
So don't expect Block's share price to hit something close to $100 within 12 months. That doesn't mean the stock isn't a buy, though, and in my view, one significant argument in favor of the company is that it has only started to realize its full ambition. Block made notable changes and additions in the past few years to connect its two ecosystems, Square and Cash App. These include Cash App Pay, a payment platform, and Afterpay, a buy now, pay later (BNPL) service. In the long run, Block hopes to establish lucrative commerce between Square and Cash App users, which it will facilitate entirely with tools within its ecosystem.
As consumers increasingly bypass traditional banks to use the parallel tools that Block offers while conducting more financial activities with these tools, the charges and fees that would typically go to banks will, instead, go right into Block's pockets. At least that's the goal, and the company is making progress, especially with younger generations who are more likely to opt for its BNPL services, its Cash App card, and more.
Cash App ended 2024 with 57 million active accounts, an increase of 2% year over the year. The app's associated card had 25 million users as of December, up 9% year over year.
True, there is increased competition. But Block benefits from the network effect, with more customers on its Cash App network attracting more Square merchants, and vice versa. Further, Block is betting on the future of crypto -- Bitcoin trading revenue is a significant part of the company's top line. Those bullish on crypto (as I am) should appreciate this part of the company's operations. Block's prospects remain attractive between its crypto-related business and its dual ecosystem. The stock might not soar by 47% in 12 months, but it can deliver solid returns in the long run.
