Shares of Block Inc. were flying toward their best trading day on record after the financial technology company once known as Square surprised investors with its positive discussion of business trends so far this year.
management team shared Thursday that gross profit for the Cash App mobile wallet would likely be up 21% on a year-over basis for the months of January and February, and the company expects improving growth on gross profit each quarter as 2022 rolls on.
The commentary helped ease Wall Street’s concerns from recent months.
“Fears that Cash App users would not outlast stimulus checks seem to have been overblown as user and engagement metrics look strong,” wrote Susquehanna analyst James Friedman, who pointed to year-over-year growth in inflows to the Cash App platform.
He has a positive rating on the stock but lowered his price target to $240 from $275.
Bernstein analyst Harshita Rawat noted that she had been nervous heading into Block’s report given “the recent underwhelming performance by pandemic winners” and expectations for rising customer-acquisition talks in the broader fintech universe.
But the “Cash App ‘bottom’ isn’t so bad,” she concluded in a Friday note to clients, while maintaining an outperform rating on Block’s stock but cutting her price target to $200 from $250.
Shares of Block were up 19.3% in Friday morning trading and on track to log their largest single-day percentage gain on record, ahead of the 15.8% rise sustained on March 24, 2020. Block is the new corporate name for Square, which changed its moniker back in December, citing its more varied business objectives beyond its merchant unit, which is retaining the Square brand name.
SMBC Nikko Securities America analyst Andrew Bauch wrote coming out of the report that “the biggest headwind to the SQ story narrative has been alleviated, specifically, the idea that Cash App gross profit estimates were inevitably going to be coming down.”
He said that buy-side estimates for Cash App gross profit “were anywhere from 5-20% below the Street” for the first half of the year, judging by his conversations.
“In our view, this quarter justifies our view that SQ deserves to be comped to names with strong enough secular and fundamental tailwinds that outweigh macro noise,” he wrote, while keeping his outperform rating and $160 price target on the stock.
Analysts also seemed enthused about the company’s newly announced investor day scheduled for May. The event “may have driven some interest and is an opportunity for the company to provide clarity” around a number of initiatives, such as buy-now, pay-later technology and crypto efforts, wrote Rosenblatt Securities analyst Sean Horgan.
“We think the opportunity for crypto in payments is a particularly interesting one and recommend investors keep it on their radar,” he wrote. “Net/net, SQ is an innovative company that historically is unafraid of disrupting the status quo and we believe it will continue to do so (perhaps more emphatically with crypto).”
Horgan boosted his price target by a buck, to $210, and has a buy rating on the stock.
Jefferies analyst Trevor Williams said the latest report brought “a sigh of relief,” and he also expressed optimism about the coming investor day.
“The stock looks cheap to us at ~9x our FY23 gross profit, and with an Investor Day in May to lay out medium-term targets, we see a much cleaner path forward,” he wrote, while keeping his buy rating on the shares but lowering his price target to $155 from $200.
Despite Friday’s big rally, Block shares are still off nearly 50% on a three-month basis as the S&P 500
has lost about 8%.