Block Inc Started With Neutral Rating at New Street Research

New Street Research analysts initiated coverage on Block Inc. (NYSE:SQ) with a Neutral rating and a $70 price target. The analysts believe there is potential for Block to achieve strategic success, particularly with the return of co-founder Jack Dorsey at the helm. Dorsey is tasked with addressing operational issues within Square, reversing market share losses, and driving merchant growth. This, the analysts suggest, could help create a more balanced two-sided ecosystem alongside Cash App, adding further utility for consumers. Without this, Cash App risks becoming just another digital wallet.

However, the company faces structural challenges, including potential declines in instant deposit revenue and increasing competition from a resurgent Venmo. The analysts noted that any meaningful turnaround for Square is unlikely before early 2025, as current initiatives, like Flywheel trials in local and food & beverage sectors, are still in early stages. Meanwhile, integration of buy-now-pay-later (BNPL) into Cash App is expected by year-end, adding to Block's potential long-term growth story.

Despite the challenges, the stock isn't considered overly expensive, with the implied enterprise value per Cash App subscriber seen as relatively low compared to peers. However, the analysts maintain PayPal as the preferred large-cap stock in the space due to its stronger valuation metrics.