SQ Earnings Watch: Decoding Buy Signals

Block, Inc. (SQ) is set to unveil its fiscal 2024 fourth-quarter earnings on February 22. Its revenue is estimated to grow by 22.7% year-over-year to $5.71 billion. Additionally, the company’s EPS is expected to increase 159% from the prior year’s period to $0.57.

Additionally, on December 7, 2023, SQ's Bitkey, the self-custody Bitcoin wallet, debuted in over 95 countries across six continents. The expansion enhances global access to self-custody, enabling individuals worldwide to manage their Bitcoin holdings securely and effortlessly, fostering financial empowerment and autonomy.

The strategic move is expected to foster financial empowerment globally and enhance SQ's market penetration, positioning it as a leading provider of accessible and secure cryptocurrency solutions.

Moreover, on November 28, 2023, SQ reported impressive performance during Black Friday and Cyber Monday. With 70 million transactions, up 14% from the previous year, SQ’s revenue is poised to surge. The surge in in-person shopping by 15% and a 3.9X increase in online cart sizes promise heightened transaction volumes and increased transaction fees, enhancing the company’s bottom line.

Furthermore, the 9% rise in businesses adopting omnichannel strategies would expand SQ’s market reach, potentially leading to more merchants using SQ’s services and boosting its revenue streams.

Shares of SQ have gained 14.2% over the past six months. However, the stock has plunged 8.6% over the past year, closing the last trading session at $65.73.

Here are the financial aspects of SQ that could influence its price performance in the near term:

Mixed Financials

During the fiscal 2023 third quarter that ended September 30, 2023, SQ’s total net revenue increased 24.4% year-over-year to $5.62 billion. Its gross profit grew 21.1% from the year-ago value to $1.90 billion.

However, net loss and net loss per share attributable to common stakeholders widened by 80.1% and 150% from the prior year’s period to $33.76 million and $0.05, respectively.

Solid Growth Record

Over the past three years, SQ’s revenue and EBITDA increased at a CAGR of 39.6% and 53%, respectively. In addition, the company’s tangible book value and total assets grew at respective CAGRs of 37.3% and 58.9%, respectively.

Optimistic Analyst Estimates

The consensus revenue estimate for the fiscal year ended December 2023 stands at $21.84 billion, signaling a 24.6% year-over-year increase. Likewise, the company's EPS is anticipated to witness a 92.4% uptick from the previous year, reaching $1.92.

Looking ahead, analysts anticipate a 13.6% increase in revenue for the fiscal year ending December 2024, with projections reaching $24.82 billion. Similarly, EPS for the ongoing year is expected to experience a growth of 57.9% from the previous year, settling at $3.04.

Poor Profitability

The stock’s trailing-12-month gross profit margin and trailing-12-month EBITDA margin of 34.69% and 0.26% are 41.3% and 98.8% lower than the industry averages of 59.11% and 20.71%, respectively.

Moreover, the company’s trailing-12-month levered FCF margin of 2.26% is 87.5% lower than the 18.05% industry average. Also, its trailing-12-month CAPEX/Sales of 0.71% compares with the industry average of 2.04%.

Mixed Valuation

In terms of forward EV/Sales, SQ is trading at 1.81x, 40.9% lower than the industry average of 3.06x. Its forward Price/Sales of 1.85x is 25.9% lower than the 2.50x industry average.

However, the stock’s forward non-GAAP P/E and forward EV/EBITDA of 34.12x and 23.66x are 223.7% and 120.1% higher than the industry average of 10.54x and 10.75x, respectively.

POWR Ratings Exhibit Mixed Prospects

SQ’s outlook is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SQ holds an A grade for Growth, indicative of its robust past growth record. However, its Value grade paints a less optimistic picture, hovering at a C, reflective of its somewhat ambiguous valuation.

Moreover, the company's Stability grade is less than stellar, marked by a concerning D, in line with its elevated 24-month beta of 2.78. SQ is ranked #65 out of 100 stocks in the Financial Services (Enterprise) industry. Click here to access SQ’s Momentum, Sentiment, and Quality ratings.

Bottom Line

Expanding Bitkey globally would bolster SQ's financial independence and market influence. Furthermore, its robust performance during Black Friday and Cyber Monday suggests a potential revenue surge fueled by heightened transactions and broader adoption of omnichannel strategies.

Although SQ's long-term prospects appear promising, its current valuation, instability, lackluster profitability, and mixed performance in the recent financial quarter suggest that it might be wise to await a better entry point in SQ.

How Does Block, Inc. (SQ) Stack Up Against Its Peers?

While SQ has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) and B (Buy) rated stocks within the Financial Services (Enterprise) industry: Tingyi (Cayman Islands) Holding Corp. (TYCMY), Jiayin Group Inc. (JFIN), and Manhattan Bridge Capital, Inc. (LOAN). To explore more Financial Services (Enterprise) stocks, click here.

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SQ shares were trading at $64.69 per share on Wednesday morning, down $1.04 (-1.58%). Year-to-date, SQ has declined -16.37%, versus a 4.25% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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