After sliding 55% since late November, shares of digital payments company Block (NYSE:SQ) got a huge boost from investors reacting to last Thursday’s earnings report. SQ stock surged more than 26% on Friday.
If nothing else, the strong results are a testament of the company formerly known as Square’s compelling business proposition at the heart of the burgeoning fintech and payments space.
Block has been a growth juggernaut in the fintech space growing its top-line by a staggering 62% over the five-year period. Its ability to consistently innovate and tap into some of the top trends in its sector makes it an industry leader. The company has been quick to embrace emerging trends, including cryptocurrencies and decentralized finance.
Growth stocks such as Block have taken a major hit due to record inflation rates and the Federal Reserve’s hawkish stance. Consequently, SQ stock now trades at roughly three times forward sales. That makes it an ideal time to pounce on the stock and invest in its growth story.
SQ Stock Surges on Stellar Results
Block’s fourth-quarter earnings certainly had the pizzazz that Wall Street had hoped for in previous quarters. Top- and bottom-line results comfortably beat analyst estimates, with healthy growth across its ecosystem. Total revenues during the quarter came in at $4.08 billion compared with $3.94 billion during the third quarter last year. Excluding Bitcoin (BTC-USD), its revenues rose a whopping 51% for the quarter.
Moreover, its adjusted earnings per share came in at 27 cents, topping estimates of 22 cents for the quarter. The results were a steep decline from the previous quarters, and a nickel less that the year-earlier period, which is a downer.
Its seller and cash app businesses generated strong gross profits of $657 million and $518 million, respectively. All in all, its gross margins came in at $1.18 billion, representing a 47% bump from the prior-year period. Assuming the macroeconomic conditions are favorable, the company expects much stronger margin growth during the second half of the year.
Block’s small business lending division, Square Loans, originated $850 million in loans in Q4 2021 across 103,000 loans, bringing the full year total to $2.45 billion, though it was not mentioned by name during the company’s earnings conference call, deBanked reported.
Additionally, Block acquired Australian buy-now-pay-later enterprise Afterpay during the quarter. The deal was initially announced last August for roughly $29 billion. However, with the substantial drop in SQ stock’s price, the deal’s value was pared to $15 billion.
Jack Dorsey and the Crypto Pivot
After Square’s name changed to Block last year, it was clear that the fintech was looking for a major chunk of the crypto pie. It appears that the company wants to be more than just a point-of-sale hardware enterprise and bring in massive revenues from its crypto exposure. Additionally, Jack Dorsey has now resigned as CEO of Twitter (NYSE:TWTR), which should allow him to have a razor focus on the expansion of Block.
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Most recently, the company announced it would be building a next-generation mining microchip. This, in large part, involves the development of a robust Bitcoin mining system. According to Block’s management, mining is a critical step towards the normalization of a decentralized financial ecosystem.
Additionally, the company will also be including Bitcoin’s lightning network in its Cash App. It will enable users to effectively send the crypto at a much quicker rate and free. Hence, it’s clear that Square will be raking in plenty of moolah from its crypto pivot.
Bottom Line on SQ Stock
Investors have badgered SQ stock, but all it’s done is that skew its risk profile to the upside. Block’s business should continue to grow in its commercial segment and significantly expand its peer-to-peer Cash App ecosystem.
With its spectacular fourth-quarter results, we can see that it still has plenty of chapters to write in its illustrious growth story. Moreover, the crypto move has already started paying dividends and could be a major growth catalyst as we advance. Therefore SQ stock is a buy at current levels.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
