SQ Stock: Why Did Wood Trim Block Ahead of Earnings?

Block [SQ] is a financial services company best known for its digital wallet Cash App, which allows users to buy, sell and send crypto. Earlier this year, CEO Jack Dorsey announced that the company will invest 10% of its gross profit from bitcoin products into bitcoin investments. 

This stock spotlight will look at Block’s recent moves in the UK and why Cash App will remain its crown jewel in the US. It will also highlight the company’s recent financial performance and what investors can expect from its Q3 earnings on November 7. 

Block Launches Corporate Card in UK 

Block launched its corporate card in the UK on October 31, the first time the business card service has expanded outside of North America. Executive Managing Director of Square UK Samina Hussain-Letch told CNBC that the service will give UK merchants faster access to their money and allow them to manage their expenses more easily. 

“We’ve had some great feedback about the benefits of having instant access to funds which really helps our small business sellers to run and grow,” said Hussain-Letch, adding that problems with cash flow are the main reason why many UK small businesses ultimately fail. 

Back in July, Block announced it was shuttering Cash App in the UK in September as part of its wider shift to deprioritize Cash App’s global expansion and prioritize improving its offering in the US. 

SQ Stock Trades At Six-Month High

While SQ stock is down 6.02% since the start of 2024, the share price has gained 10.74% in the past month amid bullish moves in crypto prices and is up 49.32% in the 12 months to November 4.

With SQ stock trading at its highest level in around six months, long-time crypto bull Cathie Wood decided to cash out some of her position on October 28. According to data collated by Cathie’s ARK, 272,842 Block shares were dumped from the ARK innovation ETF [ARKK] and 145,714 from the ARK Next Generation Internet ETF [ARKW]. On November 1, she sold an additional 42,910 Block shares from ARKK and 1,288 from the ARK Fintech Innovation ETF [ARKF].

Block’s Cash App Drives Q2 Gross Profit

Block reported a 20% increase in total gross profit for Q2 to $2.23bn, driven by a 23% increase in gross profit generated by Cash App, which reached $1.30bn. 

The mobile payment platform saw a modest 5% year-over-year increase in active users in June, while Cash App debit card users increased 13% to over 24 million. Q2 Cash App inflows rose 15% to $71bn and inflows per active user were up 10% to $1,243. 

Cash App is expected to have driven profit growth in the three months to the end of September when Block announces its latest results on November 7. The company raised full-year guidance for adjusted earnings, adjusted operating income and gross profit last time out.

Cash App competitor PayPal [PYPL] reported its active user base growing just 1% year-over-year to 432 million in Q3 2024, albeit this was the first increase since Q1 2023. UK fintech firm Wise [WPLCF] saw its active users jump 23% to 8.9 million in its Q2 2025 report released in October.

Source: Yahoo Finance

Based on its current P/S ratio and revenue projections for fiscal years 2024 and 2025, SQ stock looks undervalued ahead of its earnings report. 

SQ Stock: The Investment Case

The Bull Case for Block

Crown jewel Cash App is expected to go from strength to strength. Back in February, Block outlined plans to expand the platform’s domestic audience in the US, including by focusing on families and banking activities.

The company said in its Q2 2024 earnings release that it wants to make Cash App “the primary financial services partner of choice for families earning up to $150,000”. 

Adding new features will be key to Block encouraging customers to deposit their paychecks and bank with Cash App. “The customer service aspect of our business needs to feel like a product that again makes people say ‘wow!’ I don’t think it does today,” Dorsey told J.P. Morgan Managing Director Tien-Tsin Huang at the bank’s tech conference held in May. 

The Bear Case for Block

Afterpay, which Block acquired for $29bn in August 2021, has been testing ways to offer buy now, pay later (BNPL) services through Cash App since the start of the year. 

Spreading purchases over several payments is becoming a popular choice, particularly among young consumers. Nearly a fifth of US consumers relied on BNPL to make at least one transaction in 2023, according to research conducted by the Federal Reserve Bank of Philadelphia. 

There are concerns that BNPL could push cash-strapped consumers into a debt hole that they cannot get out of. In May 2024, the Consumer Financial Protection Bureau announced that BNPL providers must adhere to US credit card standards. However, it stopped short of requiring BNPL loans to be incorporated into credit scores and reports, which has drawn criticism. 

Macquarie analysts do not expect Block to face a major headwind from federal changes, but it is something that investors should keep an eye on. 

Conclusion 

As more consumers use digital payments and rely on digital wallets to store their money, Cash App is likely to grow in popularity. Despite the concerns around BNPL, the platform is arguably Block’s most exciting growth story right now and is expected to be a key driver of profit and margin expansion going forward. 

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