JPMorgan's Positive Outlook on Block

JPMorgan analysts have reiterated their Overweight rating on Jack Dorsey’s payment firm Block, formerly known as Square, reflecting a positive outlook for the company's performance into 2025. This rating indicates JPMorgan’s expectation that Block’s stock could outperform the average total return of other stocks in the sector.

> "We remain Overweight, continuing to be impressed by Block’s substantial improvement in profitability and remain positive on the medium-term product opportunity which may yet be multiple quarters from becoming more tangible for investors," said JPMorgan analysts Tien-Tsin Huang, Andrew D. Polkowitz, Connor Allen, and Reginald L. Smith.

Block reported strong third-quarter earnings during its call on Thursday, with gross profit up 19% year-over-year to $2.25 billion. This growth was fueled by significant gains across both its Square and Cash App segments, underscoring Block's success in both payment processing and consumer finance.

Mixed Outlook for Q4 Due to Delayed Benefits

However, despite Block's strong Q3 performance, the company’s outlook for the fourth quarter of 2024 fell short of analyst expectations. According to the JPMorgan team, the "negative surprise" came from Block lowering its Q4 guidance due to the delay of certain benefits initially expected this year, which are now projected to materialize in 2025.

The earnings call indicated that revenue or profit contributions from specific initiatives, such as new product developments, will be delayed into next year. Block’s management remains optimistic about 2025, forecasting at least 15% growth in gross profit, with a key component expected from an increase in Square’s Gross Payment Volume (GPV).

In line with its increased focus on cryptocurrency, Block plans to increase its investment in bitcoin mining and its self-custody bitcoin wallet, Bitkey. The company’s third-quarter shareholder letter described the bitcoin mining initiative as having a "strong product market fit" and a "healthy pipeline of demand."

However, this emphasis on bitcoin mining has led Block to cut back on other areas, specifically its music streaming platform TIDAL and its decentralized web initiative.