Mobile payments leader Square (NYSE: SQ), recently rebranded to Block, has made quite a few changes over the last year. Only some of them were related to the name.
In fact, a lot of Block isn't what it once was. Modifications to the C-suite have also taken place recently. Plus, a big new acquisition is shaping up to give the company a new angle to work. I'm bullish on Block, and have been for quite some time. Block represents a potential future for commerce in general, and being there now may be a good move.
Block's year in share prices so far led off in January with a bit of a gain, followed by a fairly pronounced drop that took around 20% of the company's share price with it.
However, all that loss was quickly recovered and then some. By mid-February, the stock had broken through $275, at the time its high for the year. It took only about a week to lose much of that gain. A series of dips and recoveries followed, until late May.
Block then started a slow, choppy climb to its new highs for the year. Block enjoyed that new high for about three days before beginning a much faster, choppy descent to new lows for the year. That brings us to today, where a modest recovery has brought us off the very lowest points for the year.
Block has been busy in the last few weeks. Not only has it rebranded, but it's also made a big move in its C-suite. Jack Dorsey, formerly CEO of both Twitter and Square, has left Twitter to wholly focus on Block.
Bank of America's Jason Kupferberg referred to this as a matter of “good timing,” especially in light of the other major move Block made. Here, I refer to the purchase of Afterpay.
Just weeks ago, Square — before its rebranding — announced plans to buy out Afterpay for $29 billion. The investor meeting required to vote on the arrangement has been delayed until early next year.
However, it's not expected to slow the deal up much. Reports suggest there may be some regulatory issues in Spain to consider, but those same reports suggest the deal will likely pass.
Wall Street's Take
Turning to Wall Street, Block has a Moderate Buy consensus rating. That's based on 16 Buys and six Holds assigned in the past three months. The average Block price target of $287.67 implies 75.8% upside potential.
Analyst price targets range from a low of $190 per share to a high of $360 per share.
Big Moves, Hopefully with Big Payoffs
It's one thing to make a big move and then see how it works. It's another entirely to make a whole slate of big moves all at once. The rebranding for one is a mixed blessing at best.
Square had spent years building its brand and its reputation. Why take all that and toss it just for an implication? Sure, the move from Square to Block is a great idea. A square is a two-dimensional figure, but a block is three-dimensional.
The name change is a bit dubious. It sacrifices a well-built reputation for limited effect. The Afterpay acquisition, though, that's different. With Afterpay in Block's corner, Block can not only offer mobile payments systems, but also an easy-to-use installment plan.
Square made its reputation on the back of its credit card-reading dongle. Small businesses put that to good use. Being able to open up limited credit plans as well should give those same businesses that much more edge. Throw in Dorsey's move to just be CEO of one company and the value grows from there.
Granted, the rebranding was probably not the best idea. The Afterpay acquisition is brilliant and Dorsey's newfound focus can only help matters. While Block's dividend history is nonexistent, making it a failure as an income investment stock, there still seems to be plenty of room to grow.
Concluding Views
Block is trading at its lows for the year. In fact, it's trading at prices not seen since last year. That's good news by itself.
Meanwhile, that news only improves when you consider how much else Block is preparing to do right now. The addition of Afterpay — assuming it goes through — will open up a new range of functions for the company. That's generally good news by itself. Having its CEO no longer splitting his attention between two firms can't hurt either.
The rebranding may be of dubious value, but there's too much else to like about Square to not be bullish on it.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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