Block: Crypto Miss

Summary Block's bitcoin trading generates high revenue but negligible profit, limiting its impact on overall business performance and valuation.

The company has limited innovation, with Cash App and Square no longer driving significant growth; recent product tweaks haven't moved the needle.

Block's surprise S&P 500 inclusion caused a stock price jump, but fundamentals remain unchanged and growth catalysts are lacking.

The stock will likely trade at ~21x 2026 EPS target after the S&P 500 bump, reducing any interest in buying the stock.

Block, Inc. ( XYZ ) was one of the first public fintechs to incorporate bitcoin trading into the business, yet years later the business doesn't generate any material profits off cryptocurrency as the U.S. government starts approving cryptocurrency legislation.

The stock is jumping on the surprise entry into S&P 500, leading to limited value in owning Block.

My investment thesis is now Neutral on the stock, especially above $80, where Block likely trades when the market opens on Monday.

Source: Finviz Limited Crypto Catalysts Years ago, Block would trade wildly based on revenues from bitcoin trading.

Just in Q1'25, the fintech generated $2.30 billion in bitcoin trading revenues, but the company incurred a nearly equal $2.24 billion in transaction costs.

Source: Block Q1'25 shareholder letter Block has offered bitcoin trading since 2018 , but the company has never moved beyond simple trading of the major crypto coin.

Coinbase ( COIN ) has now developed a complete platform with trading in multiple coins and offering stablecoins to reach a market cap of over $100 billion, more than double Block.

President Trump just approved the Genius Act to regulate stablecoins.

The market is dominated by Coinbase and a few other players, while Block is nowhere to be found.

The irony is that co-founder Jack Dorsey was one of the original proponents of bitcoin.

Block owns over $1 billion worth of bitcoin based on owning 8,584 coins at the current price of $118K with a cost basis of only $261 million.

Unfortunately, Block has remained stuck in focusing on the once innovative Cash App and moving into BNPL services.

Neither, really offering the growth dynamics anymore offered by crypto.

The company is starting to rollout bitcoin payments on Square in the 2H, with most sellers eligible in 2026. In addition, the company is developing bitcoin mining chips and systems under Proto with a business launch in the 2H, but the fintech isn't moving far beyond the natural crypto trading opportunity.

For Q1, Block gross profits only grew 9% to $2.29 billion.

Again, the fintech has substantial transaction costs so that gross profits work out to more of a net revenue figure.

Either way, the stock can't really be valued based on total revenues due to the excessive bitcoin revenues without any profit benefit from the pass-through costs.

The problem facing Block is that both Square and Cash App were innovative fintech products in the beginning, but the company no longer sees innovation outside of product tweaks.

The Q1'25 shareholder letter focused on product innovation with up to 100 product enhancements to Square, but the new features to the technology platform aren't moving the growth needle.

The biggest product appears to be Cash App Afterpay, a product designed for small amounts of borrowing within Cash App.

S&P 500 Surprise After the close on Friday, Block was announced as the new entry into the S&P 500 before the opening of trading on July 23. The stock will enter the key index with trillions attached to the product after Hess (HES) was purchased by Chevron ( CVX ) and removed from the index.

The stock soared 8.5% in after-market trading due to the surprise move.

Block only had a market cap of $45 billion, with Robinhood ( HOOD ), the far more discussed fintech, set to enter the S&P 500 with the market cap soaring to $100 billion.

Barron's even speculated on the next 4 stocks to be added to the index, and Block wasn't included.

Source: Seeking Alpha Block traded at ~19x EPS targets for 2026. The stock currently trades at about 4.5x gross profit targets in the range of $10 billion for the year.

The S&P 500 entry is likely to boost the stock in the 10% range, moving the forward P/E multiple to 21x.

For a company with 9% gross profit growth targets, the stock trades at about fair value.

Takeaway The key investor takeaway is that Block doesn't have the growth catalysts to chase the stock after this surprise S&P 500 entry bump when trading opens up Monday.

The company has missed the crypto craze, and the current projects don't appear to move the needle.

Investors can hold the stock next week, but one shouldn't chase Block on the entry into the S&P 500..

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