In a notable downturn, shares of fintech firm Block, formerly known as Square, are currently trading 81% lower than their peak price recorded in August 2021. Despite this decline, the company's share value has seen a 308% increase since its initial public offering in November 2015, significantly outpacing the S&P 500's 115% gain over the same period.
The company was established in 2009 by Jim McKelvey and Jack Dorsey to empower small businesses to process card payments directly through their mobile devices, filling a gap left by major banks and payment processors. Today, Block is a significant player in the fintech industry with its Square segment offering services like working capital loans, point-of-sale terminals, and invoicing tools to merchants.
In the three months ending on June 30, Square processed $54.2 billion in gross payment volume, marking a 12% year-over-year increase. The division also reported an 18% jump in gross profit during this period. The company estimates Square's total addressable market at $120 billion.
Another key component of Block's operation is Cash App—a user-friendly mobile app that offers basic banking services where traditional banks have been unable or unwilling to innovate. Cash App's gross profit surged by 37% in the most recent quarter, and it currently boasts of 54 million monthly active users.
Block aims to integrate the operations of Square and Cash App more closely, potentially transforming it into a closed-loop payments network similar to American Express (NYSE:AXP) or Discover Financial Services (NYSE:DFS). This would allow it to retain all transaction fees within its network.
The downturn in Block's stock could be attributed to increasing interest rates and dwindling investor enthusiasm for growth tech stocks. Currently, Block's shares are trading at a price-to-sales ratio of 1.6, close to their lowest ever, which might present a lucrative investment opportunity given Block's potential.
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