In a recent analysis, Block is being highlighted as well-positioned to capitalize on the growing demand for on-demand liquidity tools within the fintech industry. Analysts from William Blair have expressed confidence in the company”s long-term prospects, particularly as it enhances its offerings in the realm of consumer credit.
The firm”s report maintains an Outperform rating for Block, indicating that the risk versus reward situation remains favorable. Analysts Andrew W. Jeffrey and Adib Choudhury noted that the company”s Cash App is experiencing significant growth, especially with its Borrow feature, which has surged 134% year-over-year. This feature caters to consumer needs for quick, small loans, filling a gap left by traditional banking institutions.
Block”s innovative lending models, characterized by a rapid four-week payback period, contribute to keeping loan losses under 3% while ensuring robust returns. As the business landscape evolves, the Square division, focused on merchant payments and point-of-sale solutions, is gaining traction by expanding its distribution partnerships and updating its lending strategies for small enterprises.
Concerns among investors have emerged regarding the disparity between the increasing transaction volume flowing through Square and the accompanying profit margins. However, William Blair projects that this gap will decrease as new credit models are implemented effectively.
Additionally, Cash App is broadening its cryptocurrency functionality, having recently introduced support for both Bitcoin and stablecoin transactions. This includes the ability for customers to execute Lightning transactions directly from their USD balances, without needing to hold BTC. This enhancement allows users to send and receive stablecoins, while Square merchants can opt to accept payments in either dollars or bitcoin, effectively linking Block”s consumer and merchant services.
Looking ahead, the analysis follows Block”s announcement of $6.11 billion in revenue for the third quarter, which includes nearly $2 billion generated from its bitcoin services, representing around one-third of total revenue. Gross profit increased by 18% compared to the previous year, despite adjusted operating income and EBITDA falling short of expectations, which led to a nearly 10% decline in share prices after hours.
As of the end of the quarter, Block held 8,780 BTC and reported a $59 million negative impairment loss on its holdings. Despite these mixed third-quarter results, the report emphasizes that Block remains undervalued when compared to its peers, projecting a potential upside of over 40% within the coming year. Currently, Block shares (ticker XYZ) are trading just above $58, reflecting a more than 27% decrease from last month”s peak when shares briefly fell below $80, correlating with Bitcoin”s recent price fluctuations.
William Blair”s analysts forecast that Block”s share price could rebound above $90 within the next year, signaling potential recovery amid evolving market dynamics.
