Block offers investors the chance to buy three stocks in one

Block Inc. NYSE: sqm is a technology company with multiple ecosystems that generate a network and cumulative effect. It is best known as a fintech that operates its Square segment, which is a digital payment processing and point-of-service (POS) platform. Square made its mark with its small Square readers that could be connected to smartphones and tablets to allow small businesses to process credit card payments.

The business services company continued to expand into peer-to-peer (P2P) payments with its Cash App, similar to PayPal Inc. NASDAQ:PYPL owned Venmo and continued to add more services, including buy-now-pay-later (BNPL) provider Afterpay and bitcoin trading. The company continues to grow its Cash App as shares rise on bitcoin breakouts. Shares rallied 16% based on the Q4 2023 earnings report, despite missing consensus EPS estimates.

Ecosystems

Block has expanded its ecosystems to keep them diverse. Payment processing faces numerous challenges despite its relatively wide moat. The company has consolidated many businesses into its Cash App, making it a one-stop shop for all things finance, maximizing the network effect. This includes trading stocks and bitcoin, purchasing products with BNPL payment plans, sending transfers, purchasing items, paying bills, accessing the Square Merchant network for special discounts, obtaining a Cash card and filing taxes.

For investors, owning SQ stock is like owning three shares for the price of one. PayPal for a payment processing platform. Sofi Technologies Inc. (NASDAQ:SOFI) for banking services, including investments in stocks and cryptocurrencies. Affirm Holdings Inc. NASDAQ: AFRM for BNPL services. Check the heat map of the sector on MarketBeat.

Solid growth

On February 22, 2024, Block reported fourth-quarter 2023 earnings per share of 45 cents per share, an error of 13 cents compared to consensus estimates of 58 cents. Gross profits increased 22% year over year to $2.03 billion. Revenue increased 24.1% year over year to $5.77 billion, beating consensus analyst estimates of $5.1 billion. Square processed $57 billion in gross payment value (GPV), up 8% year over year. Cash App generated revenues of $3.91 billion, up 31% year over year, and gross profits of $1.18 billion, up 25% year over year. Cash App’s GPV was $3.95 billion, down 13% year over year. The BNPL platform contributed $325 million and $242 million to gross profit compared to $264 million and $196 million, respectively, in the same period a year ago. Adjusted EBITDA rose to $562 million from $281 million in the prior-year period.

Cash App Growth Plans

Block aims to make Cash App an all-in-one social financial platform. It aims to become a leading provider of banking services to U.S. households with annual earnings of up to $150,000. It plans to become a next-generation social bank. The company de-prioritized global expansion to implement tighter controls to improve risk loss and deliberately introduced friction into the onboarding process. While this slowed active growth, it also allowed customers to adopt banking products earlier and receive higher limits. The Cash App Card grew 20% year-over-year and more than double the growth rate of total monthly assets.

Other ecosystems

The company also has Spiral, which creates and funds free and open source projects. TIDAL is a global platform for musicians and their fans. TBD is an open development platform, which simplifies access to Bitcoin and other blockchain technologies without having to use an institutional intermediary.

Insights from the CEO

Block President Square Head and Block Chief Jack Dorsey focused on the Cash App roadmap: “Cash App is inherently social. We have incredible network effects starting with peer-to-peer. And we have this opportunity to make it even more social. And we really look deeply at local payments in local commerce in particular, and that’s where the intersection with Square comes in. We’re going to start putting our Square customers in Cash App first and you’ll really see the power of our combined ecosystems and the combined network.”

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Daily cup and handle

The daily candlestick chart on SQ illustrates a cup and handle pattern. The cup lip line formed at $81.47 on July 31, 2023. SQ continued to sell off to a swing low of $38.85 on October 30, 2023. The shares were able to break above the moving average resistance 200-period daily (MA) at $61.16 on Nov 28, 2023 and move up towards the cup lip line at $80.29 on Dec 28, 2023, to complete the cup pattern. SQ sold at $61.83 to start forming the level on January 26, 2024. SQ retested the cup lip line in a breakout attempt after leaving a gap on its Q4 2023 earnings report, peaking at $81.47 before falling below the lip line. The daily relative strength index (RSI) has moved back towards the 70 band. Pullback support levels are located at $74.36, $70.60, $63.63, and $61.83.

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