Affirm and Afterpay will be the 'Visa and Mastercard of buy now, pay later,' analyst says

Mizuho Senior Financial Technology Analyst Dan Dolev joins Yahoo Finance Live to break down Block earnings and the outlook for buy now, pay later stocks.

Video Transcript

DAVE BRIGGS: All right, shares of Block trading right now after hours. Let's take a look at this earnings alert. And they are trading down about 5 and 1/2%, as investors react to their Q2 earnings. Dan Dolev, Mizuho senior financial technology analyst, joining us now with more on the numbers. Good to see you, sir. What did we learn?

DAN DOLEV: Hey, so good to see you. Look, I mean, I think what people don't like about this is that the GPD was a little bit below what the expectation was, right? I think it was at 52.5 billion. The expectation was slightly higher on that from that. And you know, seller, the point of sale business did really well. Cash App was below some of the buy side bogeys that we've been hearing about, right?

At 705, it was a little weaker. Remember, the whole debate is around Cash App. And you want Cash App to sort of beat and raise. And I think when you don't get that with Square or Block, that's the issue. So it's kind of like the disappointment resulting from basically high expectations from the most innovative name in payments.

BRIAN CHEUNG: Hey, Dan. It's Brian Cheung here. So on that point, though, with Block, the strategy has also been trying to get into the buy now, pay later space with Afterpay. I'm wondering how you think that is being viewed within the context of this particular report. Is that a space that's also perhaps a growth strategy in the future?

DAN DOLEV: Yeah, it's been-- look, I mean, if you had to ask the market today, the market doesn't like buy now, pay later, right? You're looking at Affirm-- not in the last few weeks, right? You're looking at Affirm. You're looking at some of the other like Zip, Australia Zip, or any of these guys. The market doesn't like it. So, obviously, having buy now, pay later is kind of frowned upon at this point.

I think the results were OK. I still have to go through the numbers. I think the results for Afterpay within-- remember, they put it within the two different segments-- were fine. I think they were pretty much in line. I think there's more of a sentiment issue with buy now, pay later. Long-term, I'm very bullish on buy now, pay later. And I'm very bullish on having one or two competitors out there, which I think is going to be Affirm and Afterpay, which are going to be like the Visa and Mastercard of buy now, pay later. So I think definitely long-term, it's a great trade.

DAVE BRIGGS: So they're relatively reliant on small businesses, less affluent consumers, together, really, Block. Is there anything we're learning about the consumer and the underlying recessionary fears in the economy in this report?

DAN DOLEV: Yeah, I think the Cash App kind of coming in a little weaker. This is something that people are going to be focused on. It's actually a great question because their seller business is just a massive share gainer, so I'm not surprised to see it do really well. You saw some of the-- on the other side, you saw a company like Global Payments or Fidelity report this week and today, which are also sort of the legacy payment names. And this is where the Square point of sale is taking share from.

But from a consumer perspective, I think that post-stimi, and specifically the demographic, the lower income demographic, that the Cash App plays in. So if you're seeing weakness there, I think some people are going to be asking the question today on the call at 5:00 PM, is, hey, have you seen any weakness there? So I don't think-- I haven't seen anything in the shareholder letter. But I think that's definitely something that might trigger some questions, given that it's not as strong as some people thought on the buy side.

BRIAN CHEUNG: When we talk about just kind of the exposure of this company, too, what is the macro environment concerns about a substantial slowdown overall, we know that Square touches a lot of-- Block, rather, touches a lot of small businesses. So are you seeing any sort of concern or commentary in this earnings report about what they see in the small business world that could also ripple back into their business performance?

DAN DOLEV: Yeah, I haven't seen it. And again, going back to sort of the other question-- and I don't blame you for saying Square. I call them Square as well. It's all good. It's fine. But I haven't seen any commentary specifically. I think that the fact that their SMB business has done much better than anticipated is a testament to how good they are and share gains. So it's very hard to tell what the macro is because I don't think the macro is weak enough for them to-- for you to see anything in the numbers.

DAVE BRIGGS: Got a little-- I can see you got a little distraction there. We'll give you a second to take care of it.

DAN DOLEV: Sorry. I--

DAVE BRIGGS: All good.

DAN DOLEV: --got the dog here.

DAVE BRIGGS: It happens, brother. So you get that taken care of. And we'll go ahead and ask you that next question.

BRIAN CHEUNG: Aw.

DAVE BRIGGS: Oh, what do we got?

BRIAN CHEUNG: We love this.

DAVE BRIGGS: Who's that?

DAN DOLEV: I'm sorry about that. He was chewing on the-- he was chewing on the computer. That's what was going on.

DAVE BRIGGS: It happens to the best of us, brother.

DAN DOLEV: His name is Bitcoin.

BRIAN CHEUNG: No way.

DAVE BRIGGS: Which provides us a perfect segue because I know you cover Coinbase. What's your reaction to the partnership with BlackRock and shares soaring? That is incredible, the name.

BRIAN CHEUNG: Ultimate segue.

DAN DOLEV: You know what I'm most surprised about? You know what I'm most surprised about is yesterday, the stock traded up 20%. And we wrote a note this morning saying it traded up 20% on no reason whatsoever. And I think that-- I wonder if someone knew about this because it didn't make sense yesterday that the stock was trading up so much, right? It makes me think about-- it made me think about it in retrospect.

Like, it wasn't-- yesterday, the volumes, the average daily volumes on Coinbase were like $1.75 billion, which is literally the average dated volumes historically. So I don't understand why it was up so much. I mean, tech was up yesterday, but this was, like, outperforming tech. So I think this is-- I mean, again, from what I'm learning, they're just letting their customers use the BlackRock platform. I don't think there's anything kind of-- I don't think there's anything in here that mirrored that this 20% move today and definitely not the move yesterday.

BRIAN CHEUNG: OK, so I mean, so off of that basis, then, are you seeing anything fundamental about Coinbase? I mean, it's been a very volatile stock. I imagine that as an analyst, it's a little bit hard to have a price target on here. But it is BlackRock. And you also have Facebook announcing a partnership today as well. I mean, that is a pretty good pairing of names there.

DAN DOLEV: Yeah, I think fundamentally, Coinbase is in a bad spot, right? Because remember, they are an exchange. And they're charging really high fees for trading crypto. Most of these crypto tokens are questionable at most, right? And I think that eventually, fees are going to collapse. And you're going to basically be-- I mean, 90% of the revenue comes from, like, these fees in trading.

So eventually, what you're going to see is just, like, imploding fees. And I don't know how they're going to make money other way. So I think that I would take the other side of the trade every time Coinbase trades up. And we have, like, a 40 something dollar price target. I can see that going down very quickly.

BRIAN CHEUNG: All right, Dan Dolev over at Mizuho, as well as Bitcoin--

DAVE BRIGGS: Yes, as well as Bitcoin.

BRIAN CHEUNG: Hey, stop chewing those wires, Bitcoin. Thanks so much for stopping by.

DAN DOLEV: Dan Dolev and Bitcoin together.

BRIAN CHEUNG: Love that. Love that. We'll have both of you back on again very soon. Appreciate it.