Block’s SQ Afterpay division and strong partner base are boosting its prospects in the ‘Buy Now, Pay Later’ (BNPL) market. Its partnership with several brands, including Curology, Helzberg Diamonds, Journeys, Rawlings Sporting Goods, and Zenni Optical, is noteworthy.
Afterpay’s BNPL offering is now available to Alphabet’s GOOGL Google Play users. The expansion bodes well for the Afterpay division, on which Block estimates that consumers have spent more than $72 billion since its acquisition.
Block leverages Afterpay to boost consumer engagement. Per SQ, consumer cohorts on the platform for over five years transact more than 31 times per year on average, compared with 4 times for those who joined in the past year.
On a trailing 12-month basis, Afterpay has driven 460 million leads to merchants and saw 138 million consumer visits. This is driving advertising revenue growth.
BNPL Gross Merchandise Volume (GMV) jumped 23% year over year to $8.24 billion, exiting third-quarter 2024. Growth was driven by strength in Block’s Pay-in-Four offering and Single Use Payments, which enables customers to BNPL at both in and out-of-network merchants from within the Afterpay app.
SQ Beats Sector & Industry, Rich Partner Base Aids Prospect
Block shares have gained 25.1% in the past month, outperforming the broader Zacks Business Services sector’s appreciation of 5.2% and the Zacks Technology Services industry’s return of 5.2%.
One-Month Performance
Block shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
SQ Trades Above 50-day &200-day SMA
The strong prospect can be attributed to Block’s strong positioning in the digital payments industry on the back of its robust payment and point-of-sale (POS) solutions. Its rich partner base, including Wix, Restaurant365, and Intuit INTU, has been a key catalyst.
Block is expanding its footprint among beauty and wellness providers with new partner integrations, including SalonInteractive, Vish, Submatic, Pomp, SalconScale, and Glammatic. It inked a distribution partnership with SalonCentric to bring Square’s hardware and software offerings to more beauty professionals.
Block is investing aggressively in expanding its partner base, aiming to scale its distribution network.
SQ’s Cash App and Lyft LYFT inked a partnership to bring a customer-friendly new payment method to the latter’s customers. Cash App’s partnership with Google Play offers a preferred alternative payment option when checking out on their Android smartphones or tablets.
This is driving transaction revenues. In the third quarter of 2024, Transaction (28.7% of net revenues) revenues were $1.71 billion, up 3.2% year over year.
Strong Square ecosystem accounted for $1.61 billion in transaction revenues, up 7% year over year. Cash App contributed $99 million to transaction revenues, down 26% year over year.
In the reported quarter, Cash App Card actives grew 11% year over year to 24 million.
Block Benefits From a Strong Portfolio
SQ’s comprehensive commerce ecosystem, which enables sellers to combine software, hardware, and payment services to accept payments from customers, helps it sustain solid momentum across sellers. Its robust product portfolio is increasing Square’s Gross Payment Volume (GPV).
In the third quarter of 2024, Square’s GPV was $59.9 billion, up 7.5% and 7.6% year over year, on a reported and constant currency basis, respectively. Square’s GPV in the U.S. market grew 4.9% year over year, and Square’s GPV in international markets grew 20% and 21% year over year on a reported and constant currency basis, respectively.
SQ’s omnichannel offerings, which help sellers create differentiated customer experiences on the back of customer insights by managing orders from POS and eliminating manual aggregation of online and in-person orders, are adding strength to its seller base.
Growing momentum across the Square ecosystem and CashApp ecosystem, which enables Block to provide peer-to-peer payment and digital commercial transaction facilities, is another positive.
Block leverages AI to deliver an enhanced seller experience. Square Online’s Themes and Square for Retail’s AI-generated product descriptions help sellers strengthen customer engagement and automate sales. Square offers generative AI features to sellers, enabling them to automate operations, speed up workflows, and save time.
Block expects Square U.S. and Global GPV growth to improve modestly in the fourth quarter on a sequential basis. Further, it expects Square U.S. and Global GPV year-over-year growth to accelerate in 2025 compared with 2024.
SQ’s Earnings Estimates Revision Trend Steady
The Zacks Consensus Estimate for fourth-quarter 2024 earnings is currently pegged at 85 cents per share, unchanged over the past 30 days. The figure suggests 88.89% growth from the figure reported in the year-ago quarter.
The consensus mark for 2024 earnings is pegged at $3.51 per share, which has been unchanged over the past 30 days. Block reported earnings of $1.80 in 2023.
SQ’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, missing in one and matching in the remaining one, the average surprise being 9.27%.
Block, Inc. Price and Consensus
Block Shares: Buy, Hold or Sell?
Block shares are overvalued, as suggested by the Value Score of C.
While its growing partner base and expanding clientele are noteworthy for investors, SQ’s stretched valuation is a concern.
Challenging macroeconomic conditions, persistent inflation, unfavorable forex, and sluggish consumer spending trends are concerning for SQ.
Weakening transaction activities on Cash App and increasing pricing pressure due to rising competition from PayPal in the peer-to-peer payments space do not bode well. SQ faces stiff competition from Affirm in the booming BNPL market.
Block currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.
