Since December 1 To block (NYSE:SQ) is the new name from the company formerly known as Square. This portends its future focus on blockchain technology, including Bitcoin (CCC:BTC-USD) and the company’s focus on digital payment assets and solutions. I would expect that just like Meta-platforms (NASDAQ:FB) (parent of Facebook) has changed its name to focus on digital assets, SQ’s stock will also reflect this change.
For example, I wouldn’t be surprised to see Block issue their own cryptocurrency at some point. Also, don’t be fazed if he starts requiring transactions to be made in his crypto.
Or the company could charge a fee for all transactions made in “fiat” currency (read dollars, euros, etc.). He might also have no fees for transactions made in his new crypto or other blockchains.
Now, just to be very clear, this is just my guess. Block has not at all said he will. But remember, this seems like the natural progression of a business like this.
For example, recently AMC Entertainment (NYSE:AMC) has started issuing NFTs (non-fungible tokens). It already accepts online payments for banknotes made in several cryptocurrencies, including Bitcoin, Bitcoin Cash (CCC:BCH-USD) and Litecoin (CCC:LTC-USD). The company even mentioned the interest of its customers for Dogecoin (CCC:DOGE-USD).
Where are things with Block?
Block’s main focus is clearly now financial services. That’s a far cry from its original purpose as a vendor-based business targeting restaurants and retailers. Now the company has its Cash App and offers people the ability to buy stocks and cryptos on the app.
On November 4, the company reported mixed quarterly results for the quarter ended September 30. For example, income has increased 43% year-over-year (year-on-year) to $ 1.13 billion. It’s great, but compared to its previous quarter, it’s not that impressive. On a Q0Q basis, revenue was flat as Q2 sales were $ 1.14 billion.
In addition, Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was lower in Q3 compared to Q2. It only made $ 233 million in the third quarter, compared to $ 360 million in the second quarter. The company did not explain why this happened.
I suspect expenses relating to the acquisition of After payment in Australia announced in August lowered adjusted EBITDA. at T3. This transaction will close in the first quarter of 2022. So if so, one would assume that this was a one-time decline in Adjusted EBITDA and shouldn’t be too much of a concern.
However, that said, the company clearly shifted towards higher spending in the fourth quarter. The management wrote the page 15 of the letter to shareholders that they expect $ 115 million more in spending in Q4 compared to Q3. This is due to the development of non-GAAP products, sales and marketing as well as general and administrative expenses.
Where that leaves investors in SQ shares
The higher spending in Q4 seems to imply that his current expenses unrelated to the acquisition of Afterpay increase. This means that the sales growth will have to be even higher to cover these higher current expenses. Therefore, I expect investors to be dissatisfied with the fourth quarter results.
So don’t be too surprised by a faltering SQ stock from mid-January to February. Nevertheless, the average turnover forecast by 34 analysts surveyed by In search of the alpha is for Sales up 7.3% to $ 19.01 billion by the end of 2022.
This places the SQ share on a multiple of the futures selling price (P / S) of just 4.6 times, as the company had a market cap of $ 87.42 billion at the close on December 9. In contrast, Pay Pal (NASDAQ:PYPL) is trading for a forward P / S multiple of 7.46 times. However, 46 analysts expect their sales to be 19.1% higher in 2022. That’s more than double Block’s growth rate.
This implies that the stock of SQ is probably valued at its fair value. Lower growth usually leads to a lower valuation measure. So, for now, the more cautious investors will wait for a better trading opportunity to buy SQ shares.
As of the publication date, Mark Hake does not hold (directly or indirectly) any positions in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.