By Sam Boughedda
Block Inc (NYSE:SQ) was upgraded to Outperform with a price target of $100 per share by Macquarie Research on Monday following its third-quarter results last week.
Analysts said the upgrade is based on operating leverage flow-through, although they acknowledge that the Buy Now, Pay Later (BNPL) story arc "remains uncertain."
The growth arc is holding (excluding Afterpay), despite cost cuts and operating leverage, wrote the analysts.
"Overall Block GP in Q3 was +38% YoY including Afterpay which delivered $150m in GP (again) spread across Square Seller and Cash App. Square GP ex-Afterpay was up 17% YoY (accel.) and Cash App GP up 37% (accel.) -Afterpay added 12 and 14ppts respectively to GP growth for each segment. Sept. saw 49m transacting actives, a 20% YoY pop, w/ Card at a 35% attach rate (historically a significant driver of inflows, a key leg to the banking lineup)," the analysts explained.
"Starting with the most tangible items in our view, management highlighted its focus on enabling developers around integrations for third-party platforms to deliver greater insights to large sellers – a notable point given the typical closed-loop benefits for Cash App use and Square POS we discussed earlier. This to us speaks to the company's focus on being valuable to large enterprises – something we have heard for quite some time," they added.
They concluded that with Block shares now de-rated and operating leverage flowing through, they are upgrading the stock on improved upside/downside positioning across shares and fundamentals.