Block, Inc: Can Stock Bounce Back To October Levels?

(Preview) Initiation of Coverage (SQ US) (Neutral)

Summary

• Block's share price has more than halved since October, but we do not see it recovering to its former level in the foreseeable future.

• We see Block as a group of mediocre businesses with few differentiators, except selling products and services at low or uneconomic prices.

• Seller Ecosystem is essentially a merchant acquiring business, focused on smaller and lower-return merchants, and facing tough competition.

• Cash App is centered around free P2P payments, also available elsewhere, including from the larger and more competitive PayPal.

• Profitability and Return on Capital are low once costs are fully included. EV / Revenues is 11.6x and EV / EBITDA is 157.8x, both too high.

Introduction

We initiate our coverage on Block, Inc. (formerly Square, Inc.) after the stock has more than halved since its October levels. Compared to its 52-week high of $289.23, Block's share price has fallen by nearly 60%.

We do not believe Block shares can return to their October levels in the foreseeable futur…