Block (XYZ +2.44%), formerly known as Square, is probably best known for its small devices that plug into a smartphone to accept credit card payments. That was 15 years ago. Since then, the business has evolved into a major force in the financial services and payments industries, although shareholders haven't been rewarded in recent years.
Is this fintech stock, which trades more than 70% off its record high (as of Sept. 16), the smartest investment you can make today?
Image source: Block.
Huge opportunity, but sensitive to macro forces
Block has made a name for itself thanks to its user-friendly approach. The Square segment is a top choice for smaller merchants looking for seamless commerce solutions. And for individuals with basic banking needs, it's hard to top Cash App. Both segments posted double-digit percent gross profit gains in the latest quarter (Q2 2025, ended June 30).
The playbook for growth is generally the same for Square and Cash App. Of course, it's all about adding new customers to the mix. This has happened pretty easily historically because of the broad range of products and services the business offers, supported by a focus on innovation. More than 4 million merchants use Square while 57 million monthly active users are on Cash App.
Another aspect is to get these customers to use more products and services over time. Consequently, more money will flow through the Square and Cash App ecosystems, leading to more revenue for the overall business.
In the Q2 2024 investor presentation, the leadership team revealed the opportunity it saw. The total addressable market (from a gross profit perspective) is $130 billion for Square and $75 billion for Cash App. During the past 12 months, Block generated $9.4 billion in gross profit, so there is lots of room to grow.
However, investors shouldn't forget about an obvious risk, which is the possibility of an economic downturn and the impact it could have on the company's performance. Square and Cash App have been so successful because they target a niche in their respective markets that big banks and financial institutions ignored. The issue, though, is that these customers are more sensitive to changes in the economy.
Indirectly betting on Bitcoin
There's no denying that Block is a highly regarded fintech powerhouse. However, investors must understand that the business is focusing more on Bitcoin. It's not surprising if this makes risk-averse investors uncomfortable. For what it's worth, Bitcoin only contributed $81 million to the company's gross profit in the second quarter.
But co-founder and Chief Executive Officer Jack Dorsey said in 2021 that he didn't think there was "anything more important" to work on than Bitcoin. Block is working on different projects that relate to the top cryptocurrency. Since 2018, Cash App has allowed users to buy, sell, or hold Bitcoin. Square recently introduced a feature that lets its merchants accept payment directly in Bitcoin.
With Bitkey, Block is making a self-custody hardware wallet that emphasizes ease of use. And with Proto, the business is working on mining equipment. Block also directly owns Bitcoin, with 8,692 units of the digital asset on its balance sheet. It's not a stretch that investors who want to own this stock should also be optimistic about Bitcoin's future. Five or 10 years down the road, Bitcoin will likely be further integrated in Block's offerings.
NYSE: XYZ
Key Data Points
Block stock's valuation
Because the stock has performed so poorly, investors can buy it well off its peak. And given management's renewed focus on profitable growth, the valuation looks reasonable. Investors can buy shares at a forward price-to-earnings ratio of just 20.
While I view Block as a solid investment to make right now, especially for those who want more exposure to payments and Bitcoin, I don't think it's necessarily the smartest opportunity the market is offering. There are more dominant and profitable companies out there that could fit that description.
