Block Inc (formerly Square) Evaluated by Bernstein

Investing.com – Block Inc (NYSE:SQ), previously known as Square, has been identified as a top investment idea by Bernstein. In a recent note, the firm emphasized multiple catalysts that could propel the company’s growth until 2025.

Key Projections

• Significant Growth: Bernstein anticipates a substantial increase in Square’s Gross Payment Volume (GPV) and a roughly 30% rise in EBITDA, attributed to ongoing efficiency improvements.
• Regulatory Landscape: There is a decreasing probability of regulatory challenges, along with the possibility of Square being added to the S&P index.

Drivers of GPV Acceleration

Bernstein identifies three primary factors influencing GPV growth:
1. Reduced negative impact from same-store sales weaknesses.
2. Recent product enhancements, such as the single app, orders migration, and improved onboarding processes.
3. Development of a new distribution strategy, highlighted by recent partnerships.

Cash App & Profit Growth

The firm believes Square will address current stagnation in key metrics related to the Cash App, focusing on user growth and monetization rates. They predict a mid-teens gross profit growth leading into 2025, fueled by:
– Increased direct deposit penetration.
– Expansion of borrowing and commerce services.

Operational Efficiency

Square aims to enhance operational efficiency while limiting headcount growth, which is expected to drive approximately 50% growth in adjusted operating income by 2025.

Bitcoin Mining Initiative

Bernstein also points out Square’s venture into bitcoin mining hardware as a potentially significant driver for medium and long-term operating income growth. The success of this initiative could lead to an expansion in market multiple as SQ rejuvenates its innovative reputation.

Valuation and Shareholder Value

On the valuation front, Bernstein considers it “deeply attractive,” predicting a 26x GAAP price-to-earnings (P/E) ratio by 2026. Furthermore, they note that:
– 15% of the market cap is cash.
– Anticipated cash flow generation of $3-3.5 billion (approximately 6% of market cap) through the end of 2025.
– The company has initiated a buyback program with about $3 billion remaining, which may bolster shareholder value.