Block's Disappointing 5-Year Performance: $500 Turns into $220

Block (NYSE: XYZ) has reported slower growth in recent years compared to the pandemic years. Despite generating sizable profits, investors have seen a disappointing return of 56% in five years, turning $500 into $220. The company's business is larger today with 4 million merchants using its platform and 57 million monthly active users on Cash App. However, competition remains fierce, and investors may not be pleased with the slower growth.

Block Inc. (NYSE: XYZ), once a darling of the fintech sector, has reported slower growth in recent years compared to the pandemic era. Despite generating substantial profits, investors have seen a disappointing return of 56% in five years, turning $500 into $220. The company's business has expanded significantly, with 4 million merchants using its platform and 57 million monthly active users on Cash App. However, the slowdown in growth has raised concerns among investors.

One of the key drivers of Block's growth was its Cash App, which has seen significant adoption and usage. A recent report from UBS research analyst Timothy Chiodo highlights the potential of Block's newest lending feature inside Cash App, the ability to convert recent Cash App Card purchases into installment plans. This post-purchase buy-now, pay-later option, powered by Afterpay, has scaled quickly since its February launch and could become a meaningful earnings tailwind over the next two years Block’s Cash App post-purchase BNPL is gaining steam, could lift EPS growth: UBS^[1].

The feature has already outperformed Cash App Borrow at a similar stage of rollout, with better attach and loss rates. UBS expects the product to drive higher Cash App Card spend, grow the base of "primary banking" users, and boost monetization. The annualized run-rate for post-purchase BNPL is expected to reach $2 billion by July 2025, with over 1 million users as of July. The feature is currently available to a subset of roughly 26 million Cash Card users and not yet in every U.S. state Block’s Cash App post-purchase BNPL is gaining steam, could lift EPS growth: UBS^[1].

Despite these promising developments, Block's shares have slipped nearly 8% in recent trading, reflecting investor concerns about the company's performance and outlook. The broader momentum has faded since the year began, but investors holding over the past year have still seen a 7.1% total shareholder return, and three-year total returns are even more robust Block (SQ): Exploring Valuation After Recent Share Pullback and Market Reactions^[2].

The valuation of Block remains a topic of debate among analysts. While some analysts place its fair value at $87.17, a solid margin above the latest close of $74.67, others suggest that the shares are currently trading above its estimated fair value, indicating less upside than the multiples-based outlook suggests Block (SQ): Exploring Valuation After Recent Share Pullback and Market Reactions^[2].

Block's future growth will depend on its ability to navigate fierce competition and its reliance on lending products. The company will need to continue innovating and expanding its product offerings to maintain its competitive edge. Investors will be closely watching the company's performance in the coming quarters to gauge its ability to rebound from the recent slowdown.