Block’s (NYSE:SQ) shares saw a substantial increase of nearly 16% at the opening on Friday, reaching their highest point since mid-September. This surge was attributed to the positive response from analysts regarding the payment company’s heightened focus on profitability and its announcement of a $1 billion stock buyback program.
The company’s renewed emphasis on profitability and cost control drew parallels with its larger peer, PayPal Holdings, which recently declared its intention to become more “lean” in order to drive growth. The favorable outlook provided by both companies has instilled confidence in investors, particularly after French fintech giant Worldline’s pessimistic outlook caused a downturn in European and U.S. payment stocks the previous week.
Block’s market value surged by over $4 billion, based on the last trading price of its stock at $51.35. This significant boost came after Block’s profit forecasts and CEO Jack Dorsey’s commitment to maintaining a cap on the number of employees until business gains outpace headcount growth.
Morningstar analyst Brett Horn noted, Despite CEO Jack Dorsey’s prior emphasis on profitability, observable strides have been limited. It’s encouraging to see the company now setting clear profitability targets. In their Thursday forecast, Block anticipated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to reach $2.4 billion, surpassing LSEG’s projections of $2.08 billion.
While the stock buyback plan was widely lauded, concerns persisted among some analysts. They expressed uncertainty regarding Block’s ability to expand margins, particularly as competitors continue to erode its market share. Moshe Katri, an analyst at Wedbush, stated, “We remain cautious about growth moderation, with the merchant segment likely losing market share to competitors like Clover, and Cash App’s monetization appearing to stall.” Clover is operated by the payment services firm Fiserv, which also raised its annual profit forecast.
Featured Image: Megapixl