Block's 2024 Growth to Exceed Expectations
- Block's gross profit estimates increased to $8.85 billion for 2024
- Morgan Stanley analyst lowers price target to $60
- Investors maintain optimistic outlook despite downgrade
Block, previously known as SQ, is predicted to surpass growth expectations in 2024, as per Mizuho Securities analysts. They suggest a 'blue-sky scenario' where gross profit growth could exceed 20% in 2024, compared to the +15% guide and +16% consensus. Analyst Dan Dolev of Mizuho has maintained Block Inc with a Buy and increased the gross profit estimates to $8.85 billion and $10.15 billion for 2024 and 2025, up from $8.67 billion and $9.86 billion respectively.
Dolev has outlined four key factors that could contribute to a significant upside to the 2024 guide. These include converting approximately 1 million more Cash Card users to direct deposit, which could add +3% to GP growth, expanding Cash App's reach to higher income cohorts (+1%), broadening the reach of Cash App Borrow product (+1%), and regaining Square POS momentum in the U.S. restaurant industry (+1%).
Conversely, Morgan Stanley analyst James Faucette has downgraded Block to Underweight from Equal-weight and lowered his price target to $60 from $62. Faucette has expressed concerns about the long-term growth assumptions of the Cash App based on his demographic analysis of the U.S. Gen Z and millennial population, Cash App’s high market penetration, and limited incremental contribution from potential new credit card and additional banking services. He also emphasized the need for more evidence of Block’s ability to sustainably reaccelerate Square Seller’s growth.
Despite Faucette's downgrade, he noted that most investors disagreed with his view, with many maintaining a more optimistic outlook. They are focusing on the potential for near-term upward EBITDA revisions, the impact of more focused Seller revisions, and the push for increased direct deposits. Faucette also acknowledged that Block could continue to deliver on cost savings and profitability beats with higher-quality earnings numbers. He also noted that the Cash App should get credit for new banking services, which can support direct deposit activity and inflows.