On Thursday, Wolfe Research adjusted its financial outlook on Block Inc. (NYSE: SQ) shares, increasing the company's price target from $95.00 to $100.00, while maintaining an Outperform rating.
The research firm highlighted the significance of direct deposit (DD) users to Block's success, noting that these users currently contribute less than half of the average earnings of Generation Z and Millennials. This suggests that many are utilizing Cash App for ancillary income rather than as their primary bank.
The firm's analysis pointed to the strategic importance of Cash App's efforts to become the main banking platform for users. By attracting more users to direct deposit a larger portion of their paychecks into Cash App, there could be a notable secondary benefit.
Wolfe Research projects approximately a 4% increase in total gross profit for the fiscal year 2025 if Cash App can add an estimated 1 million new DD users annually. This growth is based on the potential to better monetize the inflows from these users.
The research indicated that DD users on average bring in about $5,000 in inflows each quarter to Cash App, compared to approximately $1,000 from non-DD users. This substantial difference underscores the potential revenue benefit for Block Inc. as it intensifies efforts to convert Cash App users to DD users, potentially leading to a four to fivefold uplift in inflows.
The emphasis on DD users is part of Block's broader strategy to deepen customer relationships and enhance revenue streams. As the company continues to focus on this segment, the increased inflows are expected to contribute positively to its financial performance in the coming years.
Block Inc., formerly known as Square, has been working on expanding its ecosystem to provide a full range of financial services, including peer-to-peer payments, banking services, and investment options through its Cash App platform. The company's stock price target increase reflects confidence in its ability to execute on this strategy and capitalize on the growing trend of fintech solutions.
InvestingPro Insights
As Block Inc. (NYSE: SQ) strategizes to bolster its user base and revenue via Cash App's direct deposit feature, recent data from InvestingPro provides a glimpse into the company's financial health and market position. With a market capitalization of $48.57 billion and a notable revenue growth of 25.01% in the last twelve months as of Q4 2023, Block showcases its scalability and increasing market reach. The company's gross profit margin stands at 34.58%, underlining its ability to maintain profitability amidst its expansion efforts.
InvestingPro Tips reveal that Block is expected to grow its net income this year, and analysts predict the company will be profitable. This aligns with Wolfe Research's positive outlook and the company's target price upgrade. Block's stock has experienced a strong return over the last three months, with a price total return of 15.44%, and a significant uptick over the last six months at 67.81%, reflecting investor confidence and market momentum.
For readers looking to delve deeper into Block's potential and gain further insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/SQ. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover why Block Inc. is considered a prominent player in the Financial Services industry with a total of 11 expert tips on InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.