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Block Earnings: Dorsey Lays Out Some Financial Targets

Block Inc. logo is seen on a smartphone screen.

We think third-quarter results for Block SQ were solid, but not overly impressive. We are more encouraged by management’s comments and its willingness to lay out some longer-term financial targets. While CEO Jack Dorsey has talked about greater discipline when it comes to profitability, we’ve seen little actual progress and we like that the company is now providing discrete profitability targets. We will maintain our $83 fair value estimate for the narrow-moat company. We see shares as materially undervalued but would stress our Morningstar Uncertainty Rating of Very High.

The cash app business saw 26% year-over-year revenue growth, excluding bitcoin. This is a sequential decline, but growth remains healthy, and we still see a long growth runway for this business. Management noted it is increasingly focused on positioning the cash app as the primary banking relationship for customers. While we think this goal highlights the long-term economic uncertainty that surrounds this business, we think the strategy makes sense at a high level.

Square experienced 12% year-over-year revenue growth, in line with the growth rate last quarter. We remain encouraged by the shift toward larger merchants and international markets, as we believe these shifts will allow the company to better scale over time, and we see scale as the driver of moats in the industry. However, in both instances, the shift seems to be slowing. Further, Clover is still outperforming Square, and the spread between the two appears to be widening. Overall, we think there is some justification for Dorsey recently taking more direct control of this segment, but we hope this is a temporary situation.

Management expects to reach midteens gross profit growth and adjusted operating margins in the mid-20s by 2026. This target roughly lines up with our 2026 projections and gives us some confidence in our forecast. However, we would note that our fair value estimate would depend on further margin improvement beyond 2026.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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