Block (NYSE:SQ) shares have lagged the broader markets in 2024 but it looks like the digital payments giant’s Q3 readout won’t be the catalyst to tilt the stock into positive territory for the year.
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Shares drifted into the red at Thursday’s open after the company delivered a mixed print. While revenue grew by 6.4% year-over-year to reach $5.98 billion, the figure missed analyst expectations by $280 million. Gross payment volume rose from $61.9 billion in the prior quarter and $60.1 billion a year ago to $62.5 billion but fell shy of Wall Street’s forecast of $64 billion.
The company recorded a gross profit of $2.25 billion in the quarter, amounting to a 19% YoY increase, edging ahead of the Street’s call for $2.24 billion. The Cash App, Block’s widely-used mobile payment platform and a major driver of overall profitability, reported a gross profit of $1.31 billion, reflecting a 21% increase from same period a year ago. At the bottom-line, the end result was an adj. EPS of $0.88, inline with Street expectations.
The mixed report was accompanied by an outlook that failed to please with Q4 adj. EBITDA expected at $725 million. Consensus was after $754 million.
Those were the major numbers but as for the fintech company’s gameplan, CEO Jack Dorsey’s shareholder letter centered on its lending products. BTIG analyst Andrew Harte acknowledges that some investors may view growth in this segment as a “lower-multiple business.” However, Harte believes Dorsey “did a good job” outlining how the lending products fuel growth across the broader Block ecosystem and highlighted their attractive returns with historically low loss rates (under 3%).
While Harte lays the blame for the downbeat post-earnings sentiment at the “light 4Q guidance and some investors figuring they can wait until 2H25 for a growth acceleration/catalyst,” he still views SQ as a “Top Pick.”
Explaining his stance, he said, “Our argument to Buy the stock now is that 1) SQ has a track record of exceeding guidance, 2) we think current valuation is very attractive at 12x FY25 EV/EBITDA and see more upside than downside at current levels, 3) Block remains in early days of driving increased product adoption in both of its ecosystems, and 4) Block is just beginning to integrate its Cash App and Square ecosystems, which could create meaningful flywheel effects over time.”
Accordingly, Harte maintained a Buy rating on the shares and kept his $90 price target intact. There’s potential upside of ~21% from current levels. (To watch Harte’s track record, click here)
Most analysts agree with that stance. The stock claims a Strong Buy consensus rating, based on a mix of 22 Buys, 4 Holds and 1 Sell. Going by the $88.43 average target, a year from now, shares will be changing hands for a ~19% premium. (See Block stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
