Oppenheimer Upgrades Block Inc Rating
Oppenheimer analysts have upgraded Block Inc (NYSE:SQ) from Perform to Outperform, setting a new price target of $115, indicating a 32% upside from Wednesday's closing price.
Key Factors for Upgrade
The upgraded rating is influenced by several factors:
– Expected Growth: Anticipated accelerated growth in Square's Gross Payment Volume (GPV).
– Financial Efficiency: Block is on track to meet financial efficiency targets ahead of time.
– Bitcoin Mining: Potential gross profit from Block's Bitcoin mining strategy.
Product Development Impact
Oppenheimer notes that Block's recent investments in product development and sales initiatives are expected to spur Square's GPV growth. By 2025, GPV is forecasted to increase by 12%, exceeding the 2024 estimate of around 9% and the consensus prediction of 10%.
Contributions to Growth
The anticipated growth stems from:
– Enhanced product offerings.
– Increased marketing efforts with strong ROI.
– A revised go-to-market strategy.
– Resilient consumer spending.
Rule of 40 Target
Block is likely to hit its Rule of 40 target by 2025, a year sooner than expected. This benchmark combines gross profit growth and adjusted operating income margin. Oppenheimer predicts a significant margin expansion of 500 bps or more next year.
Operational Efficiency
Oppenheimer points out that Block maintains a 12,000-employee cap, focuses on reducing corporate overhead, and seeks structural cost improvements via its partner ecosystem. The firm estimates a 16% gross profit growth from both Square and Cash App, and predicts a 24% adjusted operating income margin in 2025.
Bitcoin Mining Potential
The report also emphasizes Block's potential in the Bitcoin sector, bolstered by CEO Jack Dorsey's enthusiasm and a pro-crypto administration. Block's partnership with Core Scientific Inc (NASDAQ:CORZ) aims to deploy new ASIC mining chips, positioning Block as a leader in ASIC mining, similar to Nvidia (NASDAQ:NVDA) in its field. The integration of Bitcoin operations into Block's Cash App and Square ecosystems could also lead to additional gross profit growth by 2025.
Cash App Growth Outlook
Over the next two years, Oppenheimer anticipates that Cash App will continue to experience mid-teens gross profit growth, driven by the increasing adoption of Block's financial services, including the Cash App Card and growth in paycheck deposit monthly actives.
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