Even though Block (NYSE:SQ) is a premier player in the digital payments space, its 2023 performance is disappointing. A turnaround is likely imminent for SQ stock, however, as Block will soon be a leaner business and the company expects to earn substantial operating income this year. It’s understandable if some investors are concerned about Block’s future.
Alyssa Henry left the CEO position of Block’s Square division in October. Block co-founder Jack Dorsey now fills that role. Dorsey expressed his intention to be a more hands-on leader at Block. You’ll definitely need to believe in Dorsey’s leadership abilities if you plan to buy and hold Block stock. With that in mind, let’s see if there’s a compelling bull case for investing in Block right now.
SQ Stock Traders Shouldn’t Fret Over Layoffs
The New York Post reported Block plans to eliminate up to 10% of its staff. This could equate to as many as 1,300 layoffs.
Block’s shareholder letter stated that the company is placing an “absolute cap” at 12,000 total workers. This cap, apparently, will remain in place “until we feel the growth of the business has meaningfully outpaced the growth of the company.”
Of course, Block isn’t the only technology company to implement layoffs in order to cut costs. Besides, a slimmer workforce can help Block firm up its profit margins.
Investment management firm Baron Funds certainly didn’t seem too worried about Block’s future prospects in light of the upcoming layoffs.
“We believe Block’s businesses are resilient, and greater management focus on cost discipline should drive further margin expansion,” the firm’s analysts wrote in an investor letter.
Get Block Stock Now at a Discount
While the market is busy obsessing over the “Magnificent Seven” technology giants, investors have largely ignored Block. Not only is Block stock struggling to break even in 2023, but it’s also far below its 2021 peak of around $275.
This is baffling, as Block is making strides, financially speaking. The company’s gross profit grew 15% year over year in 2023’s third quarter. Also, Block’s adjusted diluted net earnings of 55 cents per share beat the analysts’ consensus estimate of 47 cents per share.
Block raised its 2023 adjusted EBITDA guidance from $1.5 billion to a range of $1.66 billion to $1.68 billion. Most amazingly of all, Block increased its 2023 adjusted operating income outlook from just $25 million to a range of $205 million to $225 million.
Clearly, Block has ambitious growth plans with Dorsey in charge. It feels as if the market doesn’t appreciate Block’s potential as a slimmed-down entity. Maybe they’ll finally understand Block’s true value when the share price is back in the triple digits.
SQ Stock: Are You on Board With Dorsey’s Vision?
To hold Block stock with confidence, you’ll want to understand and agree with Dorsey’s vision for the company’s future. Block will be leaner, and the company will have a strong focus on cryptocurrency and the blockchain.
If you’re on board with that, then I encourage you to conduct your due diligence on Block. Then, consider how cheap SQ stock is right now, and think about adding a few shares to your portfolio.
On the date of publication, David Moadel 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.
