Square-parent Block at an investor day laid out its strategy for integrating new technologies and services into its mainstay businesses. Whether the new outlook gives a boost to SQ stock remains to be seen.
At the investor day on Wednesday, Chief Executive Jack Dorsey said the company has "an ecosystem of ecosystems" business model. The strategy will create a positive feedback loop among business units as the company expands, he said.
But Square did not provide any multi-year guidance on revenues or profit margins.
"Following its first investor day in five years, Block's stock reaction remained relatively muted given many investors anticipated more color on Block's medium-term growth outlook and potential Afterpay synergies, which were not quantified," UBS analyst Rayna Kumar said in a note to clients.
Block said it plans to integrate recently acquired Afterpay, a consumer lending startup. It also will integrate Bitcoin products into its legacy consumer Cash App and merchant operations.
"SQ presented a compelling vision of how various components of its ecosystem will become increasing connected and synergistic over time," said Bank of America analyst Jason Kupferberg in a report.
Amid a corporate rebranding and the Afterpay acquisition, SQ stock has retreated 49% in 2022. The decline of Bitcoin's price has pressured Square stock.
SQ Stock: Addressable Market
"The evolution of Block has culminated in a strategy of multiple ecosystems, which gains in prowess as the connections between each drive new vectors for growth," RBC Capital analyst Daniel Perlin said in his note to clients.
"Although generally operating as separate businesses (Square and Cash App), we believe Afterpay will bridge the gap between Square and Cash App while also investing in new emerging ecosystems, such as Tidal and Bitcoin. The combination of its core ecosystems represents a $190 billion addressable market opportunity."
Square on Dec. 1 changed its name to Block, while retaining the Square brand for merchants that use its point-of-sale technology and services.
Also, Square on Jan. 31 closed the acquisition of Australia-based consumer lending startup Afterpay.
At the investor day, "Square delivered a confident, thoughtful and coherent message with a strategic focus," said Susquehanna analyst James Friedman in a report. "SQ is focusing on integrating its Cash App and Square ecosystems (largely via Afterpay), adding services and cross-selling to Cash App customers and growing its adjacent other business lines."
Block is developing cryptocurrency products that enable bitcoin-based commerce on its merchant platform. In addition, Cash App users can purchase Bitcoin. Bitcoin trading accounted for about 5% of Square's 2021 gross profit.
Square Stock: Cash App Users Reach 46 Million
At the investor day, Block said the Cash App now has 46 million monthly active users. That's up from 44 million at the end of 2021. Cash App users rose 22% in 2021.
The company disclosed that its merchant business had adjusted profit margins of 34% last year. Cash App had adjusted profit margins of 12% the company said.
"We found the incremental disclosure on fixed/variable expenses within Cash App and Square to be the most interesting data point from the investor day," said Jefferies analyst Trevor Williams in a report. "We believe it provides a needed framework to map med-term margin expansion."
Square's Relative Strength Rating is only 12 out of a best-possible 99, according to IBD Stock Checkup.
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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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