Block SQ shares have returned 7.8% in the past month, outperforming the broader Zacks Business Services sector’s appreciation of 3.7% and the Zacks Technology Services industry’s return of 5.1%. 

The outperformance can be attributed to Block’s strong positioning in the digital payments industry on the back of its robust payment and point-of-sale (POS) solutions. Its rich partner base, including the likes of Wix, Restaurant365, and Intuit INTU, has been a key catalyst.

Block is expanding its footprint among beauty and wellness providers with new partner integrations that include SalonInteractive, Vish, Submatic, Pomp, SalconScale, and Glammatic. It inked a distribution partnership with SalonCentric that will bring Square’s hardware and software offerings to more beauty professionals.

One-Month Performance

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Expanding Partner Base Aids SQ’s Prospects

Block is investing aggressively in expanding its partner base, and the latest deal is a part of that strategy. Its investments are aimed at scaling its distribution network. 

Block inked multiple partnership agreements with large food distributors, including US Foods, in the second quarter of 2024. Its partnerships with some of the largest companies in the food and beverage ecosystem will now enable SQ to penetrate 40% of the restaurants in the United States.

SQ’s Cash App and Lyft LYFT inked a partnership that will bring a customer-friendly new payment method to the latter’s customers. Cash App’s partnership with Alphabet’s GOOGL Google Play offers a preferred alternative payment option when checking out on their Android smartphones or tablets.

Cash App Offers Solid Growth Prospects

Image Source: Block

Block’s Afterpay division and strong partner base are boosting its prospects in the ‘buy now, pay later’ (BNPL) market. Its partnership with several brands, including Curology, Helzberg Diamonds, Journeys, Rawlings Sporting Goods, and Zenni Optical, is noteworthy. 

Afterpay also collaborated with various merchants, including Diane von Furstenberg, Diggs, For Eyes, and Kendra Scott, to offer installment payments for purchases from these merchants.

SQ Expanding Footprint in Diverse Industries

Image Source: Block

Afterpay’s partnership with Rokt in a bid to boost the online shopping experience for customers is another positive. This partnership enables Afterpay and its retail partners to provide relevant advertising experiences to targeted customers during the checkout process using Rokt's e-commerce solution.

Block Benefits From a Strong Portfolio

SQ’s comprehensive commerce ecosystem, which enables sellers to combine software, hardware, and payment services to accept payments from customers, helps it sustain solid momentum across sellers. Its robust product portfolio is increasing SQ’s Gross Payment Volume (GPV). In the second quarter of 2024, Block processed $61.94 billion of GPV, up 5% year over year.

SQ’s omnichannel offerings, which help sellers create differentiated customer experiences on the back of customer insights by managing orders from POS and eliminating manual aggregation of online and in-person orders, are adding strength to its seller base.

Growing momentum across the Square ecosystem and CashApp ecosystem, which enables Block to provide peer-to-peer payment and digital commercial transaction facilities, is another positive. 

Block leverages AI to deliver an enhanced seller experience. Square Online’s Themes and Square for Retail's AI-generated product descriptions help sellers enhance their customer engagement and automate sales. Square offers generative AI features to sellers, enabling them to automate operations, speed up workflows, and save time.

SQ’s Earnings Estimates Show Positive Trend

The Zacks Consensus Estimate for third-quarter 2024 earnings is currently pegged at 88 cents per share, up a couple of cents over the past 30 days. The figure indicates 60% growth from the figure reported in the year-ago quarter.

The consensus mark for fourth-quarter 2024 earnings is currently pegged at 98 cents per share, up by a penny over the past 30 days. The figure suggests 117.78% growth from the figure reported in the year-ago quarter.
 

The consensus mark for 2024 earnings is pegged at $3.60 per share, which has been unchanged over the past 30 days. Block reported earnings of $1.80 in 2023.

SQ’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing in the remaining one, the average surprise being 15.52%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Block Shares: Buy, Hold or Sell?

Block shares are overvalued, as suggested by the Value Score of C.

While its growing partner base and expanding clientele are noteworthy for investors, SQ’s stretched valuation is a concern. 

Challenging macroeconomic conditions, persistent inflation, unfavorable forex, and sluggish trends in consumer spending are concerning for SQ. 

Weakening transaction activities on Cash App and increasing pricing pressure due to rising competition from the likes of PayPal in the peer-to-peer payments space do not bode well. SQ faces stiff competition from Affirm in the booming BNPL market.

These factors make Block a less attractive bet as the shares are expected to trade sideways in the near term.

Block currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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