What is SQ? How did Block grow from a payment newcomer to a crypto financial player?

Financial systems control the flow of funds, and whoever controls that flow holds the economic lifeblood. For this reason, many companies have been trying to break the existing financial landscape, from PayPal and Alipay to recent years’ Square (now renamed Block), each seeking breakthroughs in innovative payment methods.

But what makes Block special is—it doesn’t just want to do payments; it aims to build a crypto financial ecosystem. While conservatives view cryptocurrencies as commodities, Block’s founders Jack Dorsey and Jim McKelvey have adopted a more aggressive strategy since founding the company in 2009, integrating virtual assets like Bitcoin into their business model.

Why Does Block Break Through the Red Ocean of Payments

What is SQ? Simply put, it is a reformist fintech company.

Block is listed on the New York Stock Exchange under the ticker SQ. Initially, the company targeted small and medium-sized merchants in the US who couldn’t apply for POS machines or faced high payment thresholds, offering low-cost mobile payment solutions. The first app launched in 2010 was adopted by more merchants the following year. It went public in 2015 with a $2.9 billion valuation, and on its first day, the stock surged 45%, reflecting strong market demand for electronic payments.

However, after going public, Block faced greater challenges—the electronic payment space is highly competitive, with PayPal dominating half the market, and tech giants like Apple and Google also entering. Traditional credit card companies are vertically integrated. Block’s profit model was squeezed: it pays transaction fees to credit card companies first, and only the remaining part is its own revenue, almost like making clothes for others.

The turning point came in 2017. Block began integrating functions such as crypto buying and selling, investment management, and tax services, attempting to build a complete financial ecosystem. This move allowed Block to “overtake on the bend”—offering both payment convenience and investment opportunities, greatly increasing user stickiness. In comparison, traditional payment giants later launched similar services, but Block had already gained a first-mover advantage.

Pandemic Boon and Crisis Coexist

During the pandemic, Block entered a golden era. Online commerce exploded, digital transfers surged, and crypto prices skyrocketed—between 2020 and 2021, Block’s stock price soared.

But the tide turned. After 2022, crypto markets crashed, tech stocks were sold off, and investor confidence waned. Block’s stock fell over 75% from its peak, leading many investors to doubt whether the company had reached its end.

However, from a fundamental perspective, Block has not declined. The company’s Q1 2023 financial report shows improving profitability, with Cash App (Block’s online wallet app) becoming the core growth engine, with revenue growth far surpassing traditional payment businesses. Compared to peers like Venmo, Cash App not only offers complete payment functions but also provides stock and crypto investment features, targeting mainly young investors and underbanked users.

Block vs PayPal: Which Is Better

In scale: PayPal is more mature. As of mid-2023, PayPal’s market cap was $81.4 billion, with nearly 30,000 employees; Block’s market cap was $43.8 billion, with 12,000 employees. PayPal was founded in 1998, while Block started in 2009, giving PayPal a clear first-mover advantage.

In profitability: PayPal is more stable. In 2022, PayPal’s EPS was $2.22, while Block’s was -$0.08. PayPal’s diversified revenue streams give it stronger risk resistance.

In fee competition: Both charge about 2.6%-3% for online and offline payments, with little difference.

In innovation direction: Block is more aggressive. While PayPal has also begun exploring crypto, Block invests more deeply in the Bitcoin ecosystem—buying大量挖礦晶片 in 2023, planning to launch hardware in 2024, and actively providing infrastructure support based on Bitcoin for developers, artists, and entrepreneurs.

In other words: Conservative investors prefer PayPal for stability, while investors optimistic about crypto prospects see Block as a more explosive potential choice.

Does Block Have a Chance to Turn Around

There are three optimistic signs:

First, significant valuation recovery potential. Currently, Block’s price-to-sales ratio is 1.8, extremely cheap by historical standards. Bitcoin has rebounded nearly 80% from its bottom, while Block still has a 270% upside to previous highs, indicating the market’s valuation of Block remains overly pessimistic.

Second, fundamentals are improving. Crypto prices are stabilizing and rising, and the US’s pause on interest rate hikes creates conditions for crypto assets to preserve value. The company has a chance to turn profitable in Q2 2023.

Third, the business ecosystem is expanding. Block continues to broaden its services—beyond payments, it offers image editing tools to help sellers create product images. The investment features of Cash App attract young users, and Bitcoin mining tied to crypto prices provides a unique advantage that traditional payment companies find hard to replicate in the short term.

Additionally, Bitcoin will undergo a halving event in April 2024, seen as a potential price catalyst in the crypto investment community. If crypto markets rally again, Block, as a payment company deeply tied to Bitcoin, will benefit directly.

Risks Should Not Be Ignored

But before investing in Block, you must be aware of the risks:

The payment industry faces fierce competition—giants like Visa, Stripe, and Apple are watching closely. Traditional payment leaders like PayPal and Mastercard are also ramping up their crypto efforts, with larger customer bases and global influence. Maintaining a leading position is not easy for Block.

Crypto prices remain highly volatile. If virtual assets crash again, the growth story of Block will be questioned anew, and its stock price will suffer.

The threat of tech giants’ invasion. If Apple, Google, and others aggressively enter the crypto financial space, Block’s innovative edge could be eroded.

Bottom Line

From an investment perspective, Block is indeed worth关注, but not suitable for risk-averse investors. It is a growth company at the bottom, with its stock price reflecting pessimistic expectations, but future depends on three variables: whether crypto can continue to rise, whether Bitcoin halving triggers a new cycle, and whether Block’s ecosystem integration can translate into profits.

If you believe crypto finance is part of the future, Block’s current valuation is quite cheap. If you trust traditional financial logic more, PayPal’s steady growth is a safer choice.

Currently, many analysts have raised their target prices for Block to the $85-$95 range, indicating the market is beginning to correct overly pessimistic expectations. But before investing, you should still base your decision on your understanding of crypto assets and tech stocks.