Block Stock Sinks on Lackluster Growth. Is It Time to Buy on the Dip?

Shares of Block (NYSE: XYZ) were tumbling after the fintech company reported weaker-than-expected Q4 results that missed analyst expectations. The big drop now leaves the company down more than 20% on the year, as of this writing.

Here's a closer look at Block's results to help determine if this is a good buying opportunity.

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On the chopping block

Block operates two main businesses: Square and Cash App. The former, which was the company's original business, was developed as a way for merchants to accept card payments from their smartphones or tablets. The business has evolved, and now Square offers an entire software and hardware ecosystem to help retailers manage their businesses.

Meanwhile, Cash App is best known as a peer-to-peer payment network. It also offers other services such as savings accounts, brokerage accounts, crypto services, debit cards, lending, and tax preparation.

For the fourth quarter, Block's revenue rose nearly 5% to $6.03 billion, which was short of the $6.29 billion analysts were expecting, as compiled by LSEG. Square revenue climbed 9% to $1.97 billion, while Cash App revenue rose 3% to $4.02 billion.

The company prefers to focus on gross profits instead of revenue, as its Bitcoin trading business can impact revenue. On that front, gross profits rose 14% to $2.31 billion. Square gross profits increased 12% to $924 million, while Cash App gross profits jumped 16% to $1.38 billion. Adjusted earnings per share (EPS), meanwhile, surged 51% to $0.71, but fell well short of the $0.87 consensus.

Square's gross payment volume (GPV), which is the dollar value of the transactions that get processed through its payment network, rose 10% in the quarter. U.S. GPV increased 7%, while international GPV soared 25%. The company said that the increases were due to strong retention and improving same-store-sales growth for the businesses using the Square platform.

For Cash App, monthly transacting users grew 9% to 25 million, while gross profit per these monthly active users climbed 13% to $76. In addition, active users who deposit their paychecks through the app jumped 25% to 2.5 million users.

Block said it spent 2024 overhauling Square's technology to transform it from a payments platform to a commerce platform, while also improving its onboarding process. It will now look to grow the business in 2025 through retention, adding customers, product enhancements, and increased marketing investments. It recently added a number of new features to its restaurant solution, including Bar Tabs, Scan-to-Pay, and Instant Payouts for market-delivery orders.

For Cash App, Block said that in 2024, it expanded its financial services capabilities while making investments in compliance, customer support, and the customer experience. It added new features, such as high-yield savings, free in-network ATM withdrawals, overdraft coverage, and free tax filing.

In 2025, the company is looking for the rollout of Afterpay on its Cash App and its Cash App Card to be a big growth driver. It also expects its Bitcoin mining chip system Proto to be a nice contributor in the second half of 2025.

Overall, Block is looking to see a significant growth inflection point during 2025. Its goal is to finish the year with a "Rule of 40" run rate. (The Rule of 40 is generally when a company has revenue growth and profit margins that are 40% or above.) Block uses gross profit growth instead of revenue growth because its revenue growth can be impacted by its less predictable Bitcoin trading business.

The company is looking for Q1 to be the low point for gross profit growth due to last year's leap year and currency headwinds.

Image source: Getty Images

Is Block a buy on the dip?

Trading at a forward price-to-earnings ratio (P/E) of 15 times analysts' earnings estimates for 2025, Block stock is at one of its lowest valuations in quite awhile.

XYZ PE Ratio (Forward) data by YCharts.

While the company missed some headline numbers, the earnings report overall was solid, with nice double-digit gross profit growth at both its two main businesses. Meanwhile, the company was very bullish about 2025, looking for growth to begin to accelerate after the first quarter. It sees the introduction of AfterPay into Cash App as a big opportunity, while it's looking to pour money into advertising for Square after spending 2024 revamping the the technology behind it.

Given Block's valuation and upbeat outlook, this looks like a good time to buy the stock on the dip.

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Geoffrey Seiler has positions in Block. The Motley Fool has positions in and recommends Block. The Motley Fool has a disclosure policy.