Block Sees Strong Growth in Fourth Quarter

Block SQ delivered strong growth in the fourth quarter, with overall revenue increasing 29% year over year. Block continues to build out its Cash App business, and its Square operations are bouncing back from the pandemic. While the company's top-line performance remains impressive, translating that growth into better profitability remains an issue. We will maintain our $115 fair value estimate and narrow moat rating. While the stock looks somewhat undervalued at the moment, we would caution that we believe very high uncertainty surrounds the company. Cash App continues to see strong growth, with revenue up 18% year over year, or 42% excluding bitcoin revenue. The meteoric growth the company had seen in bitcoin revenue has stalled a bit recently, but this doesn't overly concern us, given the low margins on this revenue. Gross payment volume on Cash App increased 45% year over year, basically in line with the growth rate achieved by Venmo in the quarter. This suggests Cash App is maintaining its competitive position relative to its closest peer. Square continued to post strong growth, with revenue up 49% year over year. Square continues to move up market, with gross payment volumes for sellers with over $500,000 in annual volumes up 73% year over year. We see this as an encouraging sign, as we believe Square will need to find success with larger merchants to fully scale out the business and generate better profitability over time. However, gross payment volume year-over-year growth of 45% continued to slightly lag the growth that Clover, Square's closest competitor, saw in the quarter.

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