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Block: Turnaround Underway Block: Reinvention in Progress

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The reinvention of Block, Inc. (NYSE:SQ) is well underway.

Rollercoaster Ride

Several months ago, I published an analysis of Block, Inc., suggesting the stock was nearing a bottom:

Following its substantial selloff to its Covid lows, Block stock now trades at a wide margin of safety with substantial upside potential as it hovers near a major support level. It seemed as though the stock had reached its nadir.

(Block: Back To โ€˜Squareโ€™ One).

Indeed, the stock bottomed and surged 100%, from $40 to $80 in just two months.

A triple play of blowout earnings, a strong outlook, and the recent crypto surge catalyzed this rally.

Despite the recent upturn, shares remain attractive. It appears that the resurgence of Block has only just begun, promising long-term growth and value for the stock.

Revitalized Growth

The Q3 Revenue soared by 24% YoY to $5.6B, marking a record high for the company and surpassing analyst estimates by $190M.

This stellar performance was spearheaded by the sustained growth of the Square and Cash App ecosystems, along with a surge in Bitcoin Revenue, which amounted to $2.4B in Q3, up by 37% YoY.

Despite the meteoric rise of Bitcoin Revenue, the companyโ€™s financialsโ€”without the Bitcoin componentโ€”tell their own success story. Q3 Revenue Ex-Bitcoin stood at $3.2B, a 16% YoY increase and a record high, underscoring Blockโ€™s unique value proposition and robust execution.

The Revenue Ex-Bitcoin was driven by a 10% YoY increase in Gross Payment Volume (GPV), totaling $60.1B in Q3. Notably, Revenue Ex-Bitcoin outpaced the growth of GPV, signifying enhanced monetization rates across Blockโ€™s product portfolio.

Specific metrics that track Blockโ€™s overall monetization rate showcase an upward trend, a critical element for long-term shareholder value creation.

  • Transaction Revenue as a percentage of GPV [A] has been gradually declining, whereas Subscription and Services Revenue as a percentage of GPV [B] has been on an upward trajectory, leading to an increase in the companyโ€™s Overall Monetization Rate.

This enhanced monetization is pivotal for prolonged shareholder value creation, a testament to Blockโ€™s sustained business acumen over the last few years.

Closer scrutiny of each segment revealed that Cash App Revenue amounted to $3.6B in Q3, up 34% YoY. Excluding Bitcoin Revenue, Cash App Revenue would have achieved a 26% YoY uptick. Despite a reduction in growth, this segment is expected to stabilize in the high teens in 2024.

The growth in Cash App was boosted by a variety of factors, including higher monetization rates, increased Monthly Transacting Actives, Cash App Pay Monthly Actives, and greater inflows.

Although Cash App GPV lagged, Square GPV expanded by 11% YoY to $55.7B, with International Square GPV growing by 28% YoY and US Square GPV by 9% YoY, resulting in a 12% growth in Square Revenue in Q3, reaching nearly $2.0B and setting a new record high for the segment.

The Cash App and Square ecosystems continue to flourish as fintech applications gain more traction, while legacy financial services wane in popularity.

Notably, Cash App keeps attracting more users to the platform, registering 55M Monthly Transacting Actives as of Q3, presenting a further avenue for monetization.

As more users join the platform and as Overall Monetization Rates improve, Blockโ€™s ecosystem of ecosystems will inevitably enjoy powerful network effects, driving robust growth and profitability in the future.

Rising Profitability

Turning to profitability, Q3 Gross Profit was $1.9B, a 21% YoY increase, representing a 34% Gross Margin.

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