The Future of Block: Prospects for the Next Five Years

Block (SQ) is making strides in the financial services sector, but its stock hasn't significantly rewarded investors recently.

Over the last five years, the company's stock price has only increased by 32% (as of November 26). In contrast, the S&P 500 index has seen a total return of 107% over the same period, effectively more than doubling initial investments.

Looking ahead, where is Block expected to be in five years? Will it finally offer better returns to its shareholders?

Connecting the Ecosystem

Block's management is focusing on enhancing the integration of Square and Cash App. This initiative aims to develop a more robust and independent payment system, reducing reliance on major networks like Visa and Mastercard.

The ideal scenario for Block is when a Cash App user makes a purchase from a Square merchant. Payments could be made using Cash App Pay, transferring funds directly from the user's account, or through the Cash App Card, or even using the Afterpay service for buy now, pay later transactions.

In these cases, Block stands to retain most, if not all, of the transaction fees, which is crucial for a young fintech company seeking to disrupt the payments industry by circumventing traditional card fees.

As of September 30, Block had 57 million active Cash App users and 24 million Cash App Cardholders. Square processed $59.9 billion in gross payment volume in Q3. However, given the total payment volume of $6.5 trillion in that quarter and a potential market of 7.7 billion active users, Block still constitutes a minor player in a vast market.

Investing in Bitcoin

Jack Dorsey, co-founder and CEO of Block, has openly expressed his strong support for Bitcoin, the leading cryptocurrency. In 2021, he emphasized that there is nothing more critical for him to work on in his lifetime.

This enthusiasm has led to several strategic initiatives focused on Bitcoin, such as developing a hardware wallet, mining solutions, and innovative use cases to promote digital asset adoption. As of September 30, Block holds $530 million worth of Bitcoin on its balance sheet, having made its first purchase in 2020.

Critics might argue that these efforts dilute the main focus of Block’s operations, but supporters contend that Bitcoin aligns with Block's mission to enhance financial freedom and empower users economically. If Bitcoin prices rise and Block continues to innovate with related products and services, the company's prospects could improve significantly.

Investment Opportunities

Block operates a successful business with two growing ecosystems, which are becoming ever more relevant to its user base. The company is starting to see profits rise as its leadership emphasizes ongoing efficiency improvements. For 2024, Block's adjusted operating income is projected to be nearly $1.6 billion—an astonishing 344% increase from the previous year.

Market sentiment is increasingly positive, with shares rising by 24% in November alone (as of November 26). Even with this uptick, the stock remains attractively priced, trading at a price-to-sales ratio of below 2.4—less than half the average valuation of the past five years.

Given Block's current trajectory, it is plausible that the stock may outpace the broader S&P 500 by the end of 2029.

Block, Investing, Future