Could Buying Block Stock Today Set You Up for Life?

When you think about stocks that could set you up for life, they usually come in one of two genres: young disruptors that have incredible opportunity, or winners that are already succeeding. Turnaround stories are another category that offers serious potential, but they come with much higher risk.

Consider Block (NYSE: XYZ). It was once the exciting disruptor, and Block stock, back when it was still called Square, gained more than 1,000% early in its days as a public company. But it has made a crash landing and the shares are little changed during the past five years.

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Is now an opportunity to get in before it soars again? Let's see if at this stage, Block can set you up for life.

What's wrong with Block?

Block has two segments: the Square sellers business and the Cash App personal finance app. A lot of Square's business is in software as a service (SaaS), and that has turned into a reliable recurring revenue stream. The Square gross-profit dollar retention rate was more than 100% in 2024, like it usually is, and it's just adding new business on top of that.

Cash App has a similar but separate ecosystem in which users engage as monthly actives, and the company gets reliable monthly engagement that turns into revenue.

There are two main issues with Block as I see it. One is erratic profitability. Management likes to highlight its wins with gross profit, but net operating income has been inconsistent and not necessarily positive, although it did come in at $13 million the 2024 fourth quarter, up from a $131 million loss in the same period a year earlier. And adjusted operating income climbed from $185 million to $402 million.

The other issue is the hyper-focus on Bitcoin. Block includes trading in the cryptocurrency as revenue, and that can skew its results higher or lower depending on what's happening with the digital coin. In 2024, Bitcoin revenue was $10.2 billion out of a total $24 billion.

Investing in Block is a vote of confidence in Bitcoin, counting on it to contribute to growth. For investors looking to get exposure to the crypto without directly buying some, this could be a positive feature. But for those looking to invest in a top fintech company, it could detract from the investing thesis.

Lots of potential, and competition

Block can be an incredible business. It's at the intersection of current trends, with more companies choosing automated management software like Square, and financial management happening increasingly through digital means. There's a wealth of opportunity. The problem is, it's facing intense competition.

Management spoke about turning itself from a group of disparate services, or two separate ecosystems with many different tools, into a commerce platform. Problem is, PayPal Holdings and Shopify are using similar language and taking aim at similar markets.

All three of these companies started out with different niches, but they're all moving in this direction. And that doesn't even bring smaller and newer companies into the discussion.

Square is targeting larger businesses, which come with higher growth potential, and it's already seeing results; 42% of gross payment volume came from mid-market sellers in the 2024 fourth quarter. Its goal for Cash App is get more out of its current customer base. That's going well, and gross profit per active customer increased 13% year over year in the 2024 fourth quarter.

However, it's seeing slower increases in total users. Monthly transacting active users increased from 56 million to 57 million year over year in the fourth quarter, the same as the prior three quarters.

On top of that, management gave a disappointing outlook for 2025. Block doesn't always adhere to norms, and in place of the typical revenue and EPS outlook, it's still aiming for meeting its "rule of 40" goal, which is to reach 40% as a combination of gross profit growth and adjusted operating margin.

That combination came in at 36.5% in 2024, but it's projecting a 15% increase in gross profit in 2025 and an adjusted operating income gain of about 21%, or a total of 35.5% -- lower than last year. Its target goal is to reach 40% by 2026.

What kind of investor are you?

Honestly, in addition to the financial discussion, which is the meat and potatoes of what you should be concerned about, I don't feel confident investing in a company that changed its name to reflect a pivot toward Bitcoin and then followed it up by changing its very fine ticker symbol from "SQ" to "XYZ." It gives me the impression that it's not taking itself quite as seriously as I want from the companies I invest in.

There's the possibility of a turnaround for Block, and it could go back to its previous highs and much higher. But you would have to have a high risk tolerance and believe in Bitcoin to see the possibilities.

It doesn't suit my personal investment approach, and I think there are other stocks out there that are more reliable bets for creating long-term wealth.

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*Stock Advisor returns as of March 18, 2025

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Block, PayPal, and Shopify. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.