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Block, Inc.

Biweekly Valuation – Valutico | November 22, 2024Link to the Valuation  

Revolutionizing fintech

 Block Inc., founded by Jack Dorsey, has redefined fintech with a diverse ecosystem spanning payments (Square), peer-to-peer transfers (Cash App), and music streaming (Tidal). Central to its strategy is blockchain innovation, with a focus on Bitcoin through initiatives like TBD and mining hardware, aiming to promote global financial inclusivity. 

Crypto focus

 Block Inc. is focusing on Bitcoin mining equipment and its self-custody wallet, Bitkey. To fund these, it’s reducing investments in Web5 and Tidal. This shift aligns with the growing interest in Bitcoin and mining. The company is developing its own mining hardware, including a 3-nanometer mining chip, and has already secured a major customer in Core Scientific. 

Bitcoin surge

 Bitcoin surged past $90,000 just days after Donald Trump’s victory in the 2024 U.S. elections. His administration’s emphasis on deregulating energy to support U.S. Bitcoin mining, coupled with the proposed U.S. Bitcoin Strategic Reserve and a more favorable stance on digital assets, has sparked significant market optimism. In the wake of the election results, Block Inc.’s stock rose by 19%, while Bitcoin’s price grew by 30%.  

Mixed results

 Block Inc.’s Q3 2024 results showed revenue of $5.98 billion falling short of estimates, but gross profit rose 19% YoY to $2.25 billion, driven by a 21% increase in Cash App’s gross profit. The company reported net income of $283.7 million and holds 8,300 Bitcoin valued at $630 million, with continued focus on Bitcoin accessibility and Cash App monetization. 

Valutico’s view

 Our recent analysis indicates that Block may be overvalued. A DCF valuation estimates its equity value at approximately USD 17 billion, while Trading Comparables suggest a range of USD 25–40 billion. Competing with leading fintech players such as Fiserv, PayPal, Coinbase, and Robinhood, Block faces challenges due to its relatively lower profitability, which heightens investment risk. However, the company’s focus on crypto initiatives could potentially drive future growth and support higher valuations.   

Outlook

 Block aims to drive growth by expanding its ecosystem, with Cash App adding high-yield savings and the seller ecosystem focusing on small and medium business financing and analytics. Bitcoin partnerships will support adoption and mining. However, challenges in maintaining margins, along with cryptocurrency volatility, macroeconomic headwinds, and regulatory scrutiny, pose risks ahead. 

Disclaimer

This overview is for informational purposes and not financial advice. Always conduct thorough research and consult financial experts before making any investment decisions.