Block: Top Fintech Growth Stock Poised For A Breakout

Based on the product types, the company's revenue sources are divided into two main businesses: the Cash App platform (accounting for approximately 70% of revenue) and the Square platform (accounting for approximately 29% of revenue), with other businesses contributing around 1% of total revenue. Therefore, Cash App is the company's core business and primary source of revenue.

Cash App: A financial platform primarily serving individual consumers. It simplifies person-to-person (P2P) payments and offers a range of financial services, with a focus on daily financial services. In addition, the Cash App supports virtual currency and stock trading. Cash App earns revenue through transaction fees, bitcoin transaction fees, and interest income from its investment and lending products.

Square: Square is a complete business ecosystem that provides a comprehensive platform for merchants to accept various forms of payment and offers a range of value-added services. Square's business model relies on transaction fees and revenue generated from additional services.

Geographically, the United States contributes approximately 93% of the company's revenue, making it the core market.

According to the type of revenue, the company's revenue sources can be divided into four parts: Transaction-based revenue, such as transaction fees and interest income;Subscription and services-based revenue, such as subscription fees; Hardware revenue (such as card fees), and Bitcoin revenue.

According to the latest financial report from Block, Inc., for the quarter ended March 31, 2024, the company's revenue was $5.957 billion, a year-on-year increase of approximately 19.38%, and net profit after tax was $471 million, a YoY increase of approximately 391.32%.

In the first quarter of 2024, the company's core business platform achieved significant revenue growth, with a gross profit of $2.1 billion, a year-on-year increase of 22%. Cash App generated a gross profit of $1.3 billion, a year-on-year increase of 25%, which management attributed to the strong performance of its financial services products. Square generated a gross profit of $820.3 million, a year-on-year increase of 19%, thanks to the platform's excellent performance in banking products and international markets.

As the core business of Block, Cash App offers a range of financial services, so its revenue is also composed of several parts: the BNPL (Buy Now Pay Later) platform, digital currency, financial services primarily based on the Cash App Card debit card, Instant Deposit, and other community service revenue, among others. The entire platform has a total of 57 million monthly active users (MAUs).

In 1Q24, the gross profit of Cash App Card debit card (CAC) exceeded Instant Deposit and accounted for a larger proportion of the overall gross profit margin of Cash App, becoming the largest product contributor to the gross profit of the Cash App ecosystem.

Statistics for the quarter showed that the MAUs of CAC were 24 million, which has achieved an increase of 16% YoY. Based on the stable user retention and growth of this business, CAC debit card business is expected to provide more sustainable growth space in the future. It is estimated that by 2024, the profitability of CAC in Cash App-related businesses could increase to 43%.

In this quarter, the penetration rate of Cash App users' direct deposits has increased, which means that more Cash App users have chosen to directly deposit their salaries or other income into their Cash App accounts instead of traditional bank accounts. At the same time, considering that the growth rate of inflows from paycheck direct deposit in this quarter exceeded the growth rate of total inflows on Cash App, it can be said that customers are beginning to prefer to directly deposit their salaries into Cash App accounts, and this influx of funds is likely to become a new turning point for growth, accompanied by an increase in customer savings willingness.

Cash App is able to convert 77% of inflows into revenue through Instant Deposit and Cash App Card spending in the ecosystem. 42% of active accounts hold debit card services. In comparison, Venmo, its competitor, sees 80% of its cash inflows leave the system within 10 days, and only 4% of active accounts have debit cards. This fully reflects the competitive advantage that Cash App has over other payment platforms.

In addition, Cash App is expected to further improve the monetization of its inflows through new services and products, i.e. the ability or efficiency to convert traffic, users, assets or other resources into monetary gains. Therefore, Cash App is expected to further improve the efficiency of converting inflows on the platform into actual revenue in the future.

In 1Q24, Cash App once again outperformed the average industry gross margin growth rate with an impressive gross profit margin growth rate of 25%, exceeding the industry average growth rate of 18%. This reflects its profitability level that is superior to the environment. Cash App performed well in Q1 2024 and there are signs that its gross profit margin will continue to grow.

In October 2020, Block and Tesla ignited the fuse for institutional investment in Bitcoin, investing $50 million in Bitcoin at the time. By June 2024, the company held 8,027 Bitcoins, worth approximately $573 million.

The company has invested in Bitcoin technology, launched its own Bitcoin wallet, and developed Bitcoin mining ASIC chips. In April 2024, its payment service subsidiary Square announced that it would enable businesses using its Cash App product to automatically convert a portion of daily sales into Bitcoin. In May 2024, the company announced that it would reinvest 10% of profits from Bitcoin-related products and services in Bitcoin at the average cost in US dollars (DCA) for purchasing purposes.

The company changed its name from Square to Block in December 2021, apparently a reference to the blockchain technology on which Bitcoin is based.

In November 2023, Block Ltd. announced a maximum headcount limit of 12,000 employees for the company. In the first quarter of 2024, the company continued to move towards these goals. The company expects to continue the related process for the remaining time in 2024. So far, the Company has recorded $121.6 million in severance and other related expenses. Block, Ltd. expects these control measures to continue to incur costs in the short term, but they expect these measures to generate long-term returns in the future.

Performance growth: Cash App's performance growth inflection point still has full potential in the future, and its ability to generate revenue from inflows is expected to further improve. The company's core business revenue is expected to have some upward potential, and the gross profit margin is also likely to grow further in the future.

Shareholder returns: The company has not paid dividends since its listing. Therefore, investors cannot receive regular cash returns in holding Block stocks. The reason for the non-dividend payout may be that the company's profits are basically used for reinvestment and expansion of its business, such as the acquisition of AfterPay from 2021 to 2022.

Valuation: As of June 14th, the company's forward P/E ratio for the next 12 months on US stocks is 17.4 times, higher than its main competitor PayPal (whose P/E ratio is 14.8 times). This reflects the market's high profit expectations for the company's future, and the current valuation is slightly high. It is recommended that investors maintain long-term attention and buy at the right time in the future.