Block (SQ) looks cheap but is it good value?
Key Points
- - Block (thanks in large part to Jack Dorsey, CEO) is heavily committed to Bitcoin, so it's revenue's are significantly influenced by the value of Bitcoin
- - The Cash App is driving value for the business
- - Afterpay reports first revenues under Block
The company goes the way of Bitcoin
So committed to Bitcoin is Block that the volatility in Bitcoin can have significant impact on the overall revenue for the business. This is critical for shareholders to understand before they dive straight in based on the attractive valuation multiples it currently trades at.
Block allows users to buy Bitcoin via it's platform, and during the quarter this declined by 50% which caused revenue for the business to decline by 22% for the same period. When you think about Block's products, they generally address a core problem and it's why they have been so successful. So when Bitcoin, which is a currency not a product, falls outside of the core range of products but has such an impact on revenue I think investors absolutely have reason to be scratching their heads.
Block's Cash App
The personal finance app by Block which allows users to send, receive, make payments and take out loans once the Afterpay product is integrated, continues to make significant strides. Gross profit for the quarter was $624 million, up 26% year on year. In addition, Block advised that cost of acquiring new customers is $20, which is quite incredible and explains why investors remain bullish on Block despite the recent slide in overall revenue.
Afterpay report card
Block reported that Afterpay contributed $92 million in gross profit to the business in February and March, which were the first months of reported earnings as part of the Block group. The coming quarter will give a better view on the overall performance and in the following quarters we will see how well the company integrates Afterpay into the overall business. I think the performance of the Cash App combined with Afterpay will be an intriguing product offering.
Investors in PayPal (PYPL) should be paying close attention these initiatives. The Pay in 4 from PayPal has been very successful, but they've had little competition from the BNPL players when it comes to a tightly integrated product.