Block (SQ)

That Block (SQ) CEO Jack Dorsey is a big bitcoin fan is well-known. That Dorsey also has plans for SQ to develop its bitcoin ecosystem and make it a more prominent feature is also well understood.

In fact, with Block being perceived as closely tied to BTC, following Coinbase’s lackluster Q1 earnings, SQ shares took a sympathy dive.

Such a development, though, is completely unmerited, says Oppenheimer’s Dominick Gabriele.

“Bitcoin makes up ~5% of SQ’s 2021FY gross profit, thus borderline completely irrelevant to SQ’s LT trajectory, especially given current volume penetration and limited mass-consumer-adoption use cases outside trading, in our opinion,” Gabriele noted.

Even so, SQ’s bitcoin trends are encouraging. Going by Oppenheimer data, while bitcoin volumes in the industry dropped ~16% from March to April, looking at Block’s bitcoin revenue – represented by transacted volumes on the platform – the company has “continued to gain significant market share,” rising from ~4% in 1Q20 to an “impressive” 67% at present.

In possibly a dig at Coinbase’s risk factor hoo-ha, which sparked fears the crypto exchange could go bankrupt and take its users’ coins with it, Gabriele says SQ’s diversified revenues “should give coin holders more confidence their platform will be viable.” “That’s a managerial success,” Gabriele went on to say, “but for LT investors, this runway is limited.”

While Dorsey might be a big bitcoin advocate, Gabriele gives the impression of being a crypto skeptic, hoping bitcoin won’t hog the limelight at the investor day (Wednesday May 18), and saying DEFI is “hard to stomach.” In fact, the analyst is glad SQ has “multiple high-quality revenue streams vs. other crypto-only platforms.”

“Concentrate there,” the analyst tells investors. “By no means are we crypto experts, but SQ’s diverse businesses shouldn’t be slammed for a small GP driver.”

To this end, Gabriele rates SQ shares an Outperform (i.e. Buy) along with a $150 price target. Should the figure be met, investors are looking at 12-month gains of ~77%.

Overall, most analysts are in Block’s corner. Barring 3 fence sitters, all 29 other recent reviews are positive, providing this stock with a Strong Buy consensus rating. The average target is more bullish than Gabriele will allow; at $160.41, the figure suggests shares will be changing hands for an 89% premium a year from now.