Shares of Jack Dorsey’s financial technology firm Block (SQ), formerly Square, have been in free-fall mode for many months now. Currently down 42% off its $281-and-change peak hit in August, the name definitely looks compelling, even if high-multiple stocks are poised to continue getting hammered in the new year.
With the firm’s name change comes a slight shift in focus and one that will have more of Dorsey’s attention, with the man now taking a step back from Twitter (TWTR). Indeed, Dorsey is an incredible genius, but having his time split between two major tech behemoths wasn’t ideal.
As SQ stock sinks lower, Block stock is shaping up to be an intriguing growth option at an ever-improving price. However, despite many analysts’ bullishness on the stock, I remain neutral, given the lofty price of admission and the many longer-term risks that still remain.
Block Stock: Broadening its Horizon in the Fintech Space
The $74.5 billion fintech sensation isn’t just a PoS (Point of Sale) firm with those intriguing card-reading squares anymore. It’s grown beyond those days and is now arguably one of the more exciting publicly-traded fintech stocks out there.
With the proposed $29 billion all-stock offer to acquire Australian BNPL (Buy Now Pay Later) firm Afterpay, the firm not only wishes to dip its toes into the hottest new trend in the payments space, it wants to make a huge splash. Perhaps the biggest splash of any payments firm. Indeed, the BNPL corner of the payments market is lucrative, and Square wants to be pinned as the disruptor in the financial industry, not the disrupted.
Undoubtedly, Block could have created its own installments-based payments platform, as some credit card companies or PayPal (PYPL) already have. The firm wanted to make a statement, though, and I think it did. With Afterpay shareholders delaying their vote on Block’s acquisition, Block isn’t about to slow down its plans to push for greater growth.
At this juncture, Afterpay looks to fit very well alongside Block’s Cash App and Seller segments. Though it remains to be seen what type of synergies can be created as Block looks to integrate it alongside its popular offerings. While the BNPL trend has been one of the hottest trends of 2021, it’s hard to predict in which direction it will head over the next few years.
With rates poised to rise, it’s hard to gauge just how economical interest-free installments will be. Further, the inclusion of such a sizeable BNPL unit could be a source of weakness, come the next structural economic downturn. In any case, Block has always offered such a high-risk/high-reward type of proposition for investors.
Beyond BNPL: What’s Around the Block?
Moving into 2022, the bigger story will be what Dorsey’s next ambitious plans will be, as the man looks to explore the applications of blockchain technologies in greater depth. Undoubtedly, Dorsey is one of the bigger fans of cryptocurrencies such as Bitcoin (BTC).
That said, Block may eventually evolve into a play on the broader blockchain space. Most notably, decentralized finance (DeFi) is an intriguing growth runway that has the cryptocurrency crowd quite excited, and Dorsey wants to get on the runway. Undoubtedly, DeFi could disrupt the financial services industry as we know it. Dorsey has made it loud and clear that he and his firm want to be on the right side of this disruptive trend, as well.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, SQ stock comes in as a Buy. Out of 22 analyst ratings, there are 16 Buy recommendations and 6 Hold recommendations.
As for price targets, the average Block price target is $285.29, implying an upside of 76.6%. Analyst price targets range from a low of $190.00 per share to a high of $360.00 per share.
The Bottom Line on Block Stock
The long-term growth prospects of Block’s compelling pivot seem pretty hazy at this juncture.
That said, there’s no denying its potential as an unfathomable revenue booster for Block as it continues to mature. If you can stomach the potential downside risks, Block may very well be one of the best new kids on the blockchain.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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