저자: RiyadoSofian · 외국인
요약 보기
블록(XYZ)은 3분기 실적에서 매출 성장과 수익성 개선을 보였고, 4분기 가이던스는 성장 둔화를 시사하나 2024년 조정영업이익 대폭 개선과 2026 Rule of 40 달성을 전망. 순현금 증가와 10억달러 자사주매입 발표 긍정적. 주가는 최근 반등 후에도 EV/Gross Profit 5.3배로 역사적으로 저평가이며, 역헤드앤숄더 패턴 등을 근거로 상방 여력 주장. DCF 기본 목표가 주당 14달러(현 주가 대비 높음)로 제시. 비트코인 매출 제외 시 펀더멘털 평가가 핵심.
다듬은 글
Kathy Wood loves this stock so much that she holds a 6% position in her ARK Innovation fund, making it the sixth largest holding in her fund. A little over three months ago, I uploaded a video on this particular stock, arguing that it was cheap and that the sell-off might be overdone. Since that video, the stock has rallied more than 80% in just two months. But despite the rally, the stock is still down 75% from its all-time high, and to make matters worse, it is already down more than 10% in 2024, which is not a great start to the new year at all. If you're still wondering, the stock is none other than Block, a fintech holding company that owns some of the most popular fintech brands today, including Square, Cash App, and Afterpay. Block used to be the most popular growth stock, but it has been beaten down so much that investors are now asking whether it's time to follow Cathie Wood's footsteps and buy the dip. That is what I'll be answering in today's video. More specifically, I'll be covering Block's Q3 results and outlook, and whether the stock is a good buy. As always, a link to my Block article is in the description box below. With that out of the way, let's look at Block's Q3 results.
First, let's look at growth in Q3. Block's total revenue was $5.6 billion, up 24% year over year, a record high for the company. This also beat analyst estimates by $190 million, or 3.4%. The strong performance was due to growth in the Square and Cash App ecosystems. However, most of the growth was driven by Bitcoin revenue, as we've seen from the recent rally in the price of Bitcoin. In Q3, Bitcoin revenue represented 43% of total revenue, or $2.4 billion, up 37% year over year. Given that Bitcoin revenue is highly volatile, unpredictable, and low margin, I prefer to analyze the company's financials without the Bitcoin component. So throughout this video you'll see metrics marked "ex-Bitcoin," meaning Bitcoin revenue has been excluded from their calculation. The first one is revenue ex-Bitcoin, which was $3.2 billion in Q3, up 16% year over year. Notice how much lower that is compared to the 24% growth including Bitcoin. Growth has been slowing over the last few quarters, which is normal as the company grows over a larger base. But despite the slowdown, revenue ex-Bitcoin hit a record high, which reflects Block's unique value proposition and strong execution. That said, growth was driven by higher gross payment volume, or GPV, of $6.1 billion in Q3, up 10% year over year. Revenue ex-Bitcoin grew faster than GPV, at 16% versus 10%. This means Block is extracting more value from each dollar processed through its ecosystem, which can be seen in its improving monetization rate. Monetization rate is transaction revenue plus subscription and services revenue divided by GPV. Block's overall monetization rate has been improving over the last few years. In Q1 2020 it was 4.1%, and as of Q3 2023 it had risen to 5.25%. On a year-over-year basis, the metric improved 27 basis points. This is great news, because a higher monetization rate is essential for long-term shareholder value creation, and that is what Block has demonstrated over the last few years.
Moving on, let's look at how each ecosystem is performing. For Cash App, total revenue was $3.6 billion, up 34% year over year. That included $2.4 billion of Bitcoin revenue. Removing Bitcoin, Cash App revenue ex-Bitcoin was $1.2 billion, up 26% year over year. Growth is slowing rapidly, and I expect it to stabilize in the high-teens to mid-teens in 2024. Regardless, Cash App's growth was driven by $1 billion of subscription and services revenue, up 29% year over year. This came from higher monetization rates, an 11% year-over-year increase in monthly transacting actives to 55 million, a 100% quarter-over-quarter increase in Cash App Pay monthly actives to over 2 million, and inflows of $62 billion, up 21% year over year. Overall, Cash App growth remains robust, which is great to see, though I do expect it to slow in future quarters. Square is growing more slowly than Cash App, since it's a much more mature business. In Q3, Square revenue was nearly $2 billion, up 12% year over year, also a record high for the segment, which is a testament to Square's superior products and services. All in all, the Cash App and Square ecosystem continues to grow as fintech applications gain adoption and legacy financial services fall out of favor. The number that caught my attention most is the 55 million Cash App users as of Q3, roughly 16% of the US population. While Cash App already has a lot of users, I think it has much more room to grow, since its market share is still relatively low. For instance, Venmo has 63 million users, and I think it's only a matter of time before Cash App surpasses that number. As more users join, Block's ecosystem of ecosystems should enjoy powerful network effects, which should drive strong growth and profitability for years to come.
Now let's look at profitability. In Q3, gross profit was $1.9 billion, up 21% year over year, representing a 34% gross margin. Removing Bitcoin, the gross margin ex-Bitcoin is 58%. I prefer to look at gross margin ex-Bitcoin because Bitcoin revenue carries very low margin, only about 2% gross margin, so in my opinion it doesn't generate much shareholder value. Excluding Bitcoin also gives a better view of how margins are actually trending. Q3 gross margin ex-Bitcoin of 58% improved 200 basis points year over year, demonstrating economies of scale within the Block ecosystem, which is what we like to see. By segment, Cash App's gross profit was $984 million, up 27% year over year, representing a 27% gross margin. That doesn't look impressive, but removing Bitcoin, Cash App is a very high-margin business with an 81% gross margin as of Q3. Cash App has maintained this high gross margin the entire time, which shows the durability of its business model. Square's gross profit was $899 million in Q3, up 15% year over year, a 45% gross margin, and that margin also remains stable. All in all, I like how margins are trending for both Cash App and Square.
Next are the remaining profitability metrics. This is the part I don't like about Block's reporting. They present so many non-GAAP metrics, and these are confusing and misleading. To show you what I mean, I've written the definitions down here, so you can pause the video and refer to them if you like. If you did, you're probably thinking that one or two of these adjusted metrics are completely unnecessary. In my view, it's better to focus on GAAP metrics and then use the adjusted metrics to support or confirm your thesis. For example, GAAP operating income was negative $10 million in Q3, an improvement from last year's $49 million loss, and adjusted operating income has also improved year over year, so we can safely conclude profitability is improving. On the other hand, GAAP net income got worse year over year due to higher taxes and interest expense in 2023 compared to 2022. But adjusted net income and adjusted EBITDA both improved year over year. So while GAAP net income worsened, every other metric is getting better, and on a sequential basis they are all improving quarter over quarter too. This gives me confidence that Block is on the right track toward profitability. I believe GAAP net income profitability will happen in 2024 as the company focuses on disciplined growth and cost efficiencies. Management also plans to cap headcount at 12,000, down from the current 13,000. As such, we can expect more layoffs in 2024, which should drive meaningful operating leverage and push the company toward profitability.
Turning to the balance sheet, Block has $6.3 billion in cash and short-term investments and $5.4 billion in total debt, putting its net cash position at about $0.9 billion. Net cash has been improving over the last few quarters as the company focuses on cost savings and profitability, and going forward I expect net cash to keep building. Block is generating more and more cash. In Q3 it produced free cash flow of $454 million, a free cash flow margin ex-Bitcoin of 14%. This is probably the highest cash generated in a single quarter, and hopefully the company can grow this number over time. With robust free cash flow, Block will have more cash for expansion, debt repayment, and share buybacks. In fact, Block recently introduced a $1 billion buyback program, which should minimize the dilutive impact of stock-based compensation. It's also worth noting that Block initiated the buyback program on October 26 last year, very close to the low of about $40 a share. I think the market was pleasantly surprised by the buyback program, which is probably one of the reasons the stock price moved higher.
In terms of outlook, management provided the following guidance. I've also included actual Q3 results for reference. In Q4, management expects gross profit of about $1.97 billion, roughly 19% growth year over year, lower than Q3's 21%, so expect growth to slow even further. In addition, Q4 adjusted operating income and adjusted EBITDA are expected to be lower than Q3's figures, at about $50 million and $440 million at the midpoints respectively. So GAAP profitability in Q4 is unlikely. On the bright side, management raised its full-year 2023 profit guidance. It now expects adjusted operating income of $215 million, up $190 million, and adjusted EBITDA of $1.67 billion, up $170 million. Things should only get better in 2024, with adjusted operating income expected to improve significantly to $875 million. For context, that is about four times the 2023 figure. More importantly, management expects GAAP operating profitability in 2024, which is great to hear. Similarly, 2024 adjusted EBITDA is expected to rise nearly 50% year over year to $2.4 billion. In other words, profitability is expected to accelerate in 2024. Management also believes it will reach the "Rule of 40" in 2026, with at least mid-teens gross profit growth and a mid-20% adjusted operating income margin. For those unaware, the Rule of 40 is an investment principle stating that a software company's combined growth rate and profit margin should equal or exceed 40%. Given that Block still has a long growth runway, with less than 5% penetration of its $200 billion total addressable market, and that management is taking proactive steps to cut costs and drive profitability, I think the Rule of 40 by 2026 is very much possible. In short, management's outlook is very positive, especially with the Rule of 40, which lays out a clear path toward profitability and should ultimately drive long-term value for shareholders.
Turning to valuation, the price chart shows the stock has rallied as much as 100% since its bottom in late October. Three months ago, I uploaded a video arguing that the stock might be close to the bottom, given that it was trading near its COVID lows, a very strong support level, and at depressed valuations, making it a wonderful buying opportunity. Luckily my timing was right, and the stock bottomed a few days after I uploaded that video, mainly due to strong Q3 results that fueled the rally. But the question now is, with the stock down nearly 20% from its recent high of $80, is Block still a good buy? Let's take a look. Based on EV-to-gross-profit multiple, Block still trades in deep value territory. The company currently has an EV-to-gross-profit multiple of 5.3 times, far below its peak of about 50 times and its COVID low of about nine times, despite being a much larger and more profitable company today. So even after the recent rally, the stock still looks cheap from a historical standpoint. I understand the stock deserves a lower multiple given high interest rates, high inflation, and slowing growth. But look at this chart: the fundamentals of the business, represented by quarterly gross profit (the orange line), keep improving with each passing quarter, while the stock is back to where it was five years ago. That seems ridiculous to me. I think there's a disconnect between fundamentals and share price, which is why I believe shares are still attractive today. In addition, with the recent pullback, Block's price action looks like an inverse head and shoulders, a bullish reversal pattern, so I think there's a good chance the stock moves higher from here. I also built a DCF model for Block. I won't go through the details here, but if you're interested, you can read more about it in my blog article, linked in the description box below. It includes my bull and bear cases. What you're seeing here is my base case, which has a price target of $140 per share. That is much higher than the current price of about $64 a share. In short, I believe Block stock is still undervalued despite the recent rally, and I think Block's turnaround story has only just begun, which should offer more upside for years to come.
To wrap up, I think Block is at an inflection point, and this Q3 update could be the catalyst that turns the stock around for good. For the past two years, investors have disliked Block because of its lack of profitability. Now management is focused on driving cost efficiencies and accelerating profitability, which should unlock significant value for shareholders. They are doing this by capping headcount at 12,000 and pursuing the Rule of 40 as their long-term financial target. I believe the company still has a long growth runway ahead as it builds the financial ecosystem of tomorrow through Cash App and Square. Furthermore, Block is on the verge of GAAP profitability, which I think is the next major catalyst for the stock. That's it. Despite the reversal in share price, I do believe Block stock is still undervalued. As for me, I don't hold a position in Block, since I already have exposure to the company through my investment in Marqeta, which powers the Cash App and Square cards. If you're interested, you can watch my Marqeta analysis right here. Otherwise, that's all for today. If you enjoyed this video, don't forget to like and subscribe to my channel for more investment content like this. As always, thank you for watching, I appreciate you, and I hope you have an amazing day. See you in the next video.
Comments 0