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Here's Why This Analyst Slashed Block's Price Target By 38% Ahead Of Its Q2 Results

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  • RBC Capital Markets analyst Daniel R. Perlin reiterated Outperform rating on Block, Inc (NYSE: SQ), slashing the price target from $147 to $91, given the market's re-rating of high-growth stocks and more cautious macro view into 2H/22.

  • As with last quarter, SQ has lots of moving parts, with near-term consumer data remaining healthy, albeit sequentially slowing, and inflationary pressures starting to show signs of crowding out spending for lower-income consumers, he noted.

  • For Q2, he modeled $1.74 billion (Street $1.79 billion) in adj. net revenues, $1.48 billion (Street $1.49 billion) in gross profit and $135 million (Street $148 million) in adj. EBITDA.

  • YTD through July 14, the shares are down ~61% versus the S&P 500 down ~20%.

  • He highlighted several focus areas, including near-term demand for SMB sellers, as illustrated by GPV; Cash App gross profit; and continuous integration and cross-sell of Afterpay in both Cash App and Square ecosystems.

  • Mastercard's SpendingPulse data reflected y/y sales growth across April, May, and June. More specific to SQ, restaurants saw y/y sales growth across the same three months.

  • He believes the financial health of subprime and affluent consumers is highly bifurcated. It could negatively affect Cash App's payment volume in this and coming quarters. He thinks Cash App users skew towards less affluent demographics, who are most impacted by high inflation as it relates to non-discretionary spending.

  • His positive thesis on Block factored in significant monetization opportunity for Cash App, its Seller solutions set creating a cohesive roadmap to additional wallet share in the micro and SMB market, the enormous long-term market opportunity in micro and SMB commerce & technology, its technology allowing it to grow the core payments business and international expansion over the longer term.

  • Price Action: SQ shares traded higher by 1.96% at $67.28 on the last check Monday.

Latest Ratings for SQ

Date

Firm

Action

From

To

Mar 2022

Mizuho

Maintains

Buy

Feb 2022

DA Davidson

Maintains

Buy

Feb 2022

BMO Capital

Upgrades

Market Perform

Outperform

View More Analyst Ratings for SQ

View the Latest Analyst Ratings

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