The block (square) has plunged 65% from the highs – is this a buy?
To block (NYSE:SQ)better known as Square, significantly underperformed the stock market during the recent downturn, with stocks falling more than 65% from 2021 highs. crazy live Video clip, recorded on January 27Fool.com contributors Matt Frankel, Jason Hall and Will Healy discuss whether the stock might be worth a closer look for patient long-term investors.
Matt Frankel: The block is down about 62% from its highs, and it’s not one that really got stocked, it was a stock that was up on its own. If you look at the company, just the growth of the company over the last few years, there’s no reason it’s not in place yet. In fact, it peaked in the middle of 2021, during the summer, at around $285 per share.
Since then, the reasons to buy the stock, in my opinion, have increased. Jack Dorsey resigned from Twitter and now only focuses on the business, for one thing. The company continues to grow in all the right ways. They are gaining a lot of ground in omnichannel, for example. Their After-payment the acquisition is nearing completion, which will bring a whole new million customers into their ecosystem.
By the way, their acquisition of Afterpay is a different kind of Lemonade and Metromile the deal is a stock deal. Now that Block shares are down 62%, they are effectively getting their Afterpay for a lot less. I know Jason and I said on a show that $29 billion was a ridiculous valuation to pay for Afterpay. Now they pay around $12 billion because they only pay in Square stock or Block stock, I keep saying both. But let me quickly share my screen. Here it is.
Jason Hall: So basically we can all agree that Block is a terrible name. Let’s go with that.
Will Healy: Well, I don’t know if that’s a bad name, but it’s a useless replacement. Yes I know they are trying to get the blockchain.
Frankel: I don’t want to cause controversy, I know there are a lot of crypto believers watching the show. I said that the emphasis on Bitcoin and cryptocurrency and stuff like that is probably my least favorite part of the block. Not really a knock on cryptocurrency in general. I like the rest of his activity much better. I think there are enough opportunities in the major seller and personal ecosystems, the Cash app and all to really excite me on my own, I don’t need you to add to it.
Healy: I totally agree and it’s only in about seven — I think they’re adding Spain. Once they add Spain, it will only be in eight countries. So once they get to the rest of the EU and maybe they start going to developing countries. I mean, there’s huge potential there.
Frankel: Speaking of one of the countries in which they have a decent but not significant presence is Australia, where Afterpay is based and where many Afterpay customers are located. So it instantly boosts their presence in Australia and also brings everything people have to Square’s ecosystem. I’ll just go ahead and call it Square for the rest of this discussion so I don’t have to correct myself.
But if you look at your screen, that’s Square’s gross profit since 2015, when it went public. Unlike some of the others we talked about on the show, Upstart and Shopify. I didn’t miss the boat on Square. I’ve been this one from the start. I always say that I invested in Square because before it was cool to invest in Square. Shortly after its IPO, it was called a failed IPO. The stock was doing poorly. Everyone thought it was just a niche payment processing company.
Back then, it was little more than the little Square card readers that came out of people’s iPhones. I think they just got into real point of sale terminals. The Cash App, as you can see from there, the green is that Cash App income was non-existent at the time it went public. It’s something the entire Cash App ecosystem has been building over the past four years, which is remarkable considering how big it’s become. In 2021, I’m pretty sure Cash App revenue, we’ll know in a few weeks. But Cash App’s gross profit will have surpassed the ecosystem of sellers as the biggest part of the business.
This not only includes the person-to-person payment capabilities, but all those adjacent services that they keep adding over time. You can buy and sell bitcoins through the Cash app. You can buy stocks through the Cash app. It’s a Robin Hood competitor that way, in that it’s just an easy-to-use place to buy stock. They’ve got a debit card, they’ve got direct deposit, and they can add a lot over time, especially because Square just got a banking charter last year since it hit its all-time high .
He started Square Financial Services. It’s a chartered bank that currently does small business loans and that kind of thing. But creates a ton of possibilities for the Cash app, which Square says wanted the Cash app to do just about anything your bank can do for you. He doesn’t do it yet. So there is a big opportunity here to develop the Cash app. Here is what they see as their market opportunity. Look at the market penetration there, 3% of the seller ecosystem, 2% of what they see on the individual side and it’s also a growing addressable market. This does not include buy now pay later.
This presentation was made before the announcement of the acquisition of Afterpay. This does not include, as we will mention, expanding into other potential markets over time. On this ecosystem of sellers, it is said that 100 billion dollars, of which 85 billion dollars are only from the United States. They don’t even consider the great international opportunity in that number. So, I think this company is still in its infancy and for me, if their blockchain ambitions end up producing something significant, that’s just icing on the cake. It’s just a bonus for me. I think their core business is promising enough on its own.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.