Stock in Block (NYSE:SQ), formerly known as Square, fell 6% overnight despite earnings beating analyst estimates. The company reported a loss of $208 million, or 36 cents per share, on revenue of $4.4 billion.
The problem was Bitcoin (BTC-USD). Block CEO Jack Dorsey has been a big advocate for cryptocurrency, actively trading through the company’s Cash App. Its spread from Bitcoin trading fell 24% to $41 million.
SQ Stock and Crypto Winter
Dorsey won praise from analysts by saying the company was already slashing hiring and cutting its 2022 investment target by $250 million. The price of Bitcoin fell about 35% during the quarter but has recovered over the last month.
Outside Bitcoin, the news was good. Afterpay, the “buy now, pay later” (BNPL) platform the company acquired last year, added $150 million of gross profit during the quarter. Cash App, originally created to help small merchants manage their money but now a complete banking and trading suite, saw a 29% gain in profit. Some analysts are calling the stock undervalued.
During 2022, Block has been trading less like transaction processors such as Visa (NYSE:V) or credit card banks such as Capital One (NYSE:COF) and more like fintech plays such as Paypal (NASDAQ:PYPL), which has lost half its value. Shares began recovering in mid-July, the price rising from $62 to almost $90 before earnings. The stock opened today around $84. Analysts at TipRanks still rate it “strong buy,” with 29 of 37 having it on their buy lists and just one saying sell.
What Happens Now?
Investors must decide whether Dorsey’s Bitcoin fixation is worth the risk to an otherwise sound company. Revenue has quadrupled since 2019, but net income has fallen. Slowing new investment should mean higher net income in the next few quarters, although it will come at the expense of growth.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.