Is now the best time for a previous high-flying digital payments growth name to deliver a quarterly report? Possibly not, considering the market’s adverse reaction to such stocks this earnings season.
However, that’s what Block (SQ) will do this Thursday (Feb 24). But maybe the fact peers such as PayPal and Affirm have disappointed means the bar is lowered somewhat, says RBC’s Daniel Perlin. Plus, the stock is down by 60% since the prior report, and as such, Perlin believes the “expectations hurdle going into the print is low, possibly creating a clearing event.”
Perlin’s estimates are more or less the same as the Street’s, calling for revenue to rise by 49% year-over-year to $1.35 billion (consensus has $1.34 billion) and adj. EBITDA to drop by 20% YoY to $148 million (same as the Street).
In any case, Perlin considers this period as a transitional time for the company, with the Afterpay integration the focal point over the next 2-3 quarters as the two companies “come together to bridge SQ’s two main ecosystems, Seller and Cash App.”
Additionally, Bitcoin & Crypto initiatives are set to become more pronounced and potentially “distracting” for some investors.
As for what to look out for when the company reports, Perlin thinks there are three key areas to focus on. These include: “1) gross profit assumptions for both Cash App and Seller in FY22, 2) incremental contributions from Afterpay, and 3) FY22 cadence with 1H/22 likely to be weaker than 2H/22.”
All in all, the 5-star analyst rates SQ shares an Outperform (i.e., Buy), although due to the “material re-rating in software/payments names,” the price target is reduced from $203 to $147. Nevertheless, there’s still upside of 54% from current levels. (To watch Perlin’s track record, click here)
What does the rest of the Street make of SQ’s prospects ahead of the earnings date? Most are banking on a strong recovery. The stock boasts a Strong Buy consensus rating, driven by 20 Buys vs. 2 Holds. What’s more, the average target is far more bullish than Perlin will allow; the forecast calls for one-year gains of ~123%, given the figure clocks in at $212.64. (See SQ stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
