3. Block, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 96
Decline in Share Price in the Last 6 Months: 54.29%
Block, Inc. (NYSE:SQ) is a financial services and digital payments company based in San Francisco, California. Cathie Wood owned over 6 million Block, Inc. (NYSE:SQ) shares in Q4 2021, worth $997.70 million, representing 3.01% of her fund’s total 13F securities. Block, Inc. (NYSE:SQ) shares declined 54.29% in the last six months.
Needham analyst Mayank Tandon lowered the firm’s price target on Block to $175 from $315 to reflect lower valuations for high-growth payments stocks but kept a Buy rating on the shares after its “strong” Q4 results. The recent Afterpay acquisition should give Block, Inc. (NYSE:SQ) another lever to accelerate international expansion and integrate buy-now-pay-later products into both its Seller and Cash App ecosystems, the analyst told investors in a research note.
Among the hedge funds tracked by Insider Monkey in Q4 2021, 96 funds were bullish on Block, Inc. (NYSE:SQ), down from 98 funds in the prior quarter. Bares Capital Management is a significant stakeholder of the company, with 4.3 million shares worth $705.2 million.
Here is what RiverPark Large Growth Fund has to say about Block, Inc. (NYSE:SQ) in its Q4 2021 investor letter:
“Block (formerly Square): Block declined on mixed quarterly results, management commentary on slowing Cash App growth, and a delay in the closing of the AfterPay acquisition (Block announced the takeover of the global “buy now, pay later” platform in August). Still, SQ reported a strong quarter overall with gross profit growth at 43% year over year (due to passthrough costs, gross profit is more reflective of top-line growth), with gross profit from its Seller Ecosystem growing 48% to $606 million and from its Cash App growing 33% to $512 million. Still, some investors focused on the weaker-than-expected gross profit growth in the company’s Cash App division, creating pressure on the company’s shares. Importantly, Adjusted EBITDA beat expectations, growing 28% to $233 million.
Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers, representing half of first quarter’s gross profit). The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion for 2020, and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown from nothing in 2015 to $512 million gross profit last quarter) has a particularly large opportunity with its powerful ecosystem of digital financial services, including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app. We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while half of the company’s current profit is from its Seller Business, we believe most of Block’s future value will come from its Cash App business.”
