Can Block Inc. (SQ) keep growing?

Block Inc. (SQ), the company formerly known as Square, loses money despite dramatic growth. For example, Block’s revenues grew by 25.99% in the quarter ending on 31 March 2023.

Conversely, Block reported an operating loss of -$6.17 million on 31 March 2023. The operating loss shrank from -$135.18 million on 31 December 2022 and -$226.79 million on 31 March 2022. Thus Block is improving.

Block has reported three straight quarters of double-digit growth. Block’s revenues grew by 14.03% in the quarter ending on 31 December 2021 and 17.45% in the quarter ending on 31 September 2022. However, Block’s revenues shrank by -21.68% in the quarter ending on 31 March 2022.

Is Block Inc. (SQ) making money?

Consequently, Block’s revenues grew from $3.961 billion on 31 March 2022 to $4.99 billion on 31 March 2023. However, the revenue growth is not translating into income.

Block reported four quarters of operating losses for the past year. For example, Block reported quarterly operating losses of -$135.18 million on 31 December 2022 and -$226.79 million on 31 March 2022.

However, Block’s quarterly gross profit grew from $1.295 billion on 31 March 2022 to $1.715 billion on 31 March 2023. Hence, Block is becoming more profitable.

Block is accumulating more cash. For instance, the quarterly operating cash flow rose from $229.42 million on 31 March 2022 to $294.4 million on 31 March 2023. However, the quarterly operating cash flow fell to -$114.63 million on 30 June 2023, $15.74 million on 30 September 2022, and $45.37 million on 31 December 2022.

How much Cash can Block (SQ) accumulate?

Yet Block (SQ) can accumulate enormous amounts of cash. It reported a quarterly ending cash flow of $9.346 billion on 31 March 2023.

The quarterly ending cash flow rose from $7.366 billion on 31 March 2022, -$211.09 million on 30 June 2022, $479.96 million on 30 September 2022, and $801.41 million on 31 December 2022.

Block is putting that cash to use. It reported a quarterly investing cash flow of $623.92 million on 31 March 2023. The quarterly investing cash flow rose from -$279.55 million on 31 December 2022, and rose from $164.97 million on 30 September 2022. However, the quarterly investing cash flow fell from $1.131 billion on 31 March 2022.

Block is borrowing money. It reported quarterly financing cash flows of $978.99 million on 31 December 2022 and $358.79 million on 30 September 2022. Yet is not paying debt, the quarterly financing cash flow fell from -$968.56 million on 31 March 2022 to -$9.08 million on 31 March 2023. Block’s total debt fell from $5.03 billion on 31 March 2022 to $4.965 billion on 31 March 2023.

Block has more cash and less debt. The cash and short-term investments grew from $4.9 billion on 31 March 2022 to $6.499 billion on 31 March 2023. Thus, Block passes one important test for a finance stock. It is accumulating more cash.

What is Block (SQ)?

Block Inc. (NYSE: SQ) is a FinTech company that comprises two businesses. Those businesses are Square and Cash App. Block also owns the Tidal music service, Spiral, and the TBD decentralized finance (DeFi) service.  

Square offers point-of-sale (POS) hardware and software solutions for businesses. For example, credit card readers. In particular, Square offers wireless card readers you can attach to a phone. They also offer terminals that can sit next to phones.

Square makes money by charging merchants for the POS equipment. For example, $149 or $14 for 12 months for the Square Stand Mount. Square also makes money by charging transaction fees.

Square’s business could be have limits. Ready Cloud estimates around two million merchants use Square POS products. Most Square users are small and medium-sized businesses. For example, Expanded Ramblings estimates 61% of Square merchants process less than $125,000 a year.

Square had 28.28% of the POS Systems market in 2023, 6sense estimates. This made Square the largest player in that market. Square’s top competitor, Toast, had 21.97% of the POS systems market, 6sense estimates.

Square’s payment volume grew from $33 million in 2016 to $112 million in 2020 to $167 million in 2021 to $186.4 million in 2022, Business of Apps estimates.

How Much Money is the Cash App generating?

The Cash App is a mobile payment solution similar to PayPal (PYPL). Block claims the Cash App is the number one finance app in the Apple App Store.

Cash App growth is remarkable. Cash App’s quarterly revenues grew from $17 million in the first quarter of 2019 to $3.27 billion in the first quarter of 2023, Business of Apps estimates. However, Cash App’s revenues fell from $4.03 billion in the first quarter of 2021. Cash App revenues grew from $2.46 billion in the first quarter of 2022.

Most of Cash App’s revenues come from Bitcoin (BTC) transactions. Cash App made $10.02 billion in Bitcoin revenue in 2021 and $7.71 billion in Bitcoin revenue in 2022. Cash App’s Bitcoin revenues grew from $51 million in 2019 and $4.57 billion in 2020. Business of Apps estimates 76% of Cash App’s revenue comes from BTC transactions.

Thus, Cash App profited from the cryptocurrency bubble and will profit from any future crypto bubbles.

Cash App’s Incredible Growth

Cash App’s profits are growing. Business of Apps estimates Cash App’s annual profits grew from $19 million in 2018 to $2.07 billion in 2021 and $2.95 billion in 2022.

The number of Cash App users grew from three million in 2016 to 24 million in 2019 to 36 million in 2020 to 44 million in 2021 to 51 million in 2022. Similarly, the number of Cash App Card owners grew from $3.5 million in 2019 to seven million in 2020 to $13 million in 2021 to 18 million in 2022.

Users trust CashApp. ZDNet estimates CashApp users had $1.7 billion stored in the App in August 2020. Interestingly, CashApp is only available in two countries: the United States and the United Kingdom.

What Value does Block Inc. (SQ) offer?

I think Mr. Market overpriced Block Inc. at $60.39 on 31 May 2023. I believe the share price is too high because Block had total assets of $31.337 billion on 31 March 2023. The total assets grew from $29.127 billion on 31 March 2023.

I think Block is a fast-growing finance stock that could generate cash. However, I think Block’s growth potential could be small because it only operates in the US and the UK. Therefore, I think it is a good idea for investors to stay away from Block until it expands beyond those two markets.

Additionally, Block does not offer a dividend. There are alternatives that offer dividends, for example MasterCard (M) and American Express (AXP). I think those stocks are better for the average investor.

However, Block’s revenues and cash could explode if it expands beyond the United States. I think there could be an enormous market for Block, especially with Cash App’s ability to help ordinary people buy Bitcoin (BTC). Block is an interesting finance stock for ordinary people to watch and an intriguing growth stock for those who can afford to lose money.