On December 10, 2021, the name change from Square to Block became legally effective. The change of name is, among other things, an allusion to the blockchain, which in the course of the hype surrounding cryptocurrencies is being traded as one of the big megatrends in the technology world. As yet, however, the new name does not seem to be bringing the company any luck: The group has lost more than 40% or USD 34 billion in stock market value since then. That is significantly more than the Nasdaq or the Bitcoin had to give up in this period. So it's time to take a look behind the scenes.
The fact that the Block share is relatively susceptible to fluctuations is partly due to the fact that the online and mobile payment provider is closely linked to cryptos. On the one hand, this applies to its operating business, where the company's digital peer-to-peer banking app also allows bitcoin transactions. In the third quarter, the Cash app already generated bitcoin revenue of USD 1.82 billion, an increase of more than one-tenth year-on-year. The gross payment volume, i.e. all processed transactions together, even increased by 27% to USD 3.7 billion in the same period. Gross profit improved disproportionately by almost 60%. On the other hand, CEO and founder Jack Dorsey is a self-confessed crypto supporter. Therefore, the group itself is also on the buying side when it comes to digital assets. Block has now invested more than USD 200 million directly in bitcoin.
As if that were not enough, Dorsey wants to invest in new technologies beyond his payment business, especially in the blockchain. One project is already known: a bitcoin mining system that is open worldwide. The goal is to make mining more efficient, from purchase to setup, maintenance to operation. The company expects mining to go far beyond creating new bitcoins. "We see it as a long-term need for a fully decentralized and permission-free future," explains block manager Thomas Templeton.
Currently, the fintech powerhouse's business model is based on five divisions. These include the core Square brand with its software solutions, the Cash app, the Spiral division specializing in open-source bitcoin projects, the artist-focused TIDAL, and the open developer platform TBD54566975. The competition, however, is not sleeping, as a recent push by Apple shows. The tech giant wants to launch a new service this year that will allow small businesses to accept payments directly on their iPhones without having to use additional hardware like Block's Square terminals. Block isn't letting that get in its way, however. With its Cash app and Square products, the company is in the process of expanding toward the Old Continent. According to media reports, a European CEO was appointed at the beginning of February.
In recent years, Jack Dorsey has proven that he has visionary potential and is also successful at it. Block's revenue, for example, has grown steadily since the first quarter of 2018 and has now increased more than fivefold. While the revenue development is in a constant upward trend, the earnings side shows high fluctuations. Operating profit moves volatile up and down between the black and the red. On the positive side, Block has been operating in the positive zone for five quarters and this trend should have continued in the final quarter of 2021. The analyst consensus projects earnings per share of USD 0.23. Block will report its 2021 financial statements on Feb. 24.
In view of the positive outlook and the meanwhile strongly reduced valuation, there is definitely a chance for the block share to gradually find a bottom. From a chart perspective, this is currently emerging at USD 100. The psychologically important mark represents a strong support. However, investors do not have to take full risk to get the innovative tech company into their portfolio. Leonteq offers several interesting alternatives in this regard: Block is part of the Swissquote Digital Payments Index. In the barometer, which has a total of 20 components, the company can be found among the top 5 with a weighting of 6.05%. The Tracker Certificate (Valor 43469503) reflects the performance of the strategy index 1:1. Block also has a weighting of around 3.25% in the Swissquote Blockchain Index, which brings together promising companies from the blockchain environment and is investable via a PostFinance-guaranteed Tracker Certificate (Valor 112984464).
In addition, it is also possible to invest in Block with conditional partial protection. For this purpose, Leonteq has launched two new softcallable BRCs. With these products, above-average returns are possible even in a sideways trend or with moderately declining prices. With a maximum term of 12 months and a risk buffer of a comfortable 45.00%, an interest rate of 20.00% p.a. is possible with the CHF variant. The USD-denominated variant even offers a coupon of 22.00% p.a. with otherwise identical features.
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