Fintech

Is Block, Inc. a good buy for Fintech investors?

Published

7 months ago

27 June, 2024

To control persistently high inflation and maintain economic stability, the Federal Reserve has raised interest rates to levels not seen in the last 22 years. The financial sector benefits significantly from higher interest rates because they lead to higher profit margins and investment income.

Additionally, the widespread use of mobile technology and the Internet has contributed to the strong demand for online financial services, especially in the wake of the Covid-19 pandemic. The global fintech market is expected to reach $608.35 billion by 2029, expanding at a CAGR above 14% in the forecast period (2024-2029).

Block, Inc. (m2) has positioned itself comfortably in the fintech sector. With Square, Cash App, TIDAL and TBD, the company creates tools to help people access the economy. Since its launch, Cash App, where you can buy, hold, withdraw or sell bitcoin, has had more than 21 million actives.

However, federal prosecutors are probing financial transactions at SQ, including Cash App and Square. The former employee provided prosecutors in the Southern District of New York with documents alleging that Square and Cash App do not have sufficient customer data for risk assessment and that the company processed multiple cryptocurrency transactions for terrorist groups .

For the first quarter of 2024SQ reported net revenue of $5.96 billion, beating analysts’ estimate of $5.82 billion. Its Cash App revenue was a record $4.17 billion during the quarter, up 23% year over year. Additionally, the company’s non-GAAP net earnings per share were $0.85, compared to the consensus estimate of $0.73.

In the earnings release, the company said it will invest 10% of its “gross profit from bitcoin products in bitcoin purchases.”

Additionally, SQ expressed confidence in its growth prospects by raising its guidance for fiscal 2024. The company expects full-year core earnings to be at least $2.76 billion, higher than its previous forecast of 2 $.63 billion.

Shares of SQ have gained 2.5% over the past year, closing the latest trading session at $63.29. However, the stock has fallen 4.2% over the past month and 19.1% over the past six months.

Let’s take a look at the factors that could influence SQ’s performance in the coming months.

Robust financial performance

For the first quarter ended March 31, 2024, SQ’s net revenue increased 19.4% year-over-year to $5.96 billion. Bitcoin revenue totaled $2.73 billion, up 26.2% year-over-year. Its gross profit rose 22.2% from a year ago to $2.09 billion. Cash App’s gross profit was $1.26 billion, up 25% year-over-year, while Square’s gross profit was $820 million, up 19% year-over-year.

Furthermore, that of the company Adjusted EBITDA rose 91.6% from its year-ago value to $705 million. Its net income attributable to common shareholders grew 380.1% year over year to $472.01 million. Additionally, the company’s net earnings per share were $0.74, an increase of 362.5% from the prior-year quarter.

As of March 31, 2024, Block’s cash and cash equivalents stood at $5.75 billion, up from $5 billion as of December 31, 2023. However, the company’s current liabilities increased to $12.50 billion as of March 31, 2024, versus $9.92 billion as of March 31, 2024. December 31, 2023.

Favorable analysts’ expectations

Analysts expect SQ’s revenue for the second quarter (ending June 2024) to grow 13.5% year over year to $6.28 billion. The consensus EPS estimate of $0.84 for the current quarter indicates a year-over-year increase of 115.6%. Additionally, the company has surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Street expects SQ’s revenue and EPS to grow 14.5% and 89% from a year earlier, to $25.10 billion and 3, respectively. $40. Additionally, the company’s revenue and EPS for fiscal 2025 are expected to increase 11.7% and 27.7% year-over-year to $28.02 billion and $4.35, respectively.

Mixed profitability

SQ’s trailing 12-month asset turnover ratio of 0.68x is 216.4% higher than the industry average of 0.22x. However, its trailing 12-month gross profit margin of 34.77% is 41.7% lower than the industry average of 59.68%. Likewise, the stock’s trailing 12-month EBIT margin of 0.77% is 96.7% lower than the industry average of 23.45%.

Additionally, the stock’s trailing 12-month net profit margin of 1.68% is significantly lower than the industry average of 23.03%. Trailing 12-month ROCE and ROTC of 2.11% and 0.46% are unfavorable compared to industry averages of 10.60% and 6.84%, respectively.

Mixed rating

In terms of forward non-GAAP PEG, SQ is trading at 0.46x, 59.7% lower than the industry average of 1.13x. The stock’s EV/forward sales multiple of 1.53 is 50.4% lower than the industry average of 3.08. However, its forward EV/EBIT of 37.83x is 248.4% higher than the industry average of 10.86x.

Additionally, the stock’s forward price-to-book multiple of 1.93 is 85.8% higher than the industry average of 1.04. Its forward EV/EBITDA of 13.75x is 39.1% higher than the industry average of 9.89x.

POWR ratings reflect uncertainty

SQ’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. POWR Ratings are calculated by taking into account 118 different factors, each optimally weighted.

Our proprietary rating system also evaluates each security based on eight distinct categories. SQ has a C grade for quality and value, in sync with its higher-than-industry profitability and lower-than-industry valuation, respectively.

Additionally, SQ has a grade of C for Stability, justified by its 24-month beta of 2.59.

Inside the Financial Services (Enterprise) sector, SQ is ranked 49th out of 93 stocks.

In addition to the above, we have also assigned SQ grades for Momentum, Growth and Sentiment. Get all SQ ratings Here.

Bottom line

SQ beat analysts’ estimates for top-line and profit in the latest reported quarter. The company has benefited significantly from a robust job market and wage growth that has allowed Americans to put aside worries of an economic slowdown and continue spending on travel, shopping and dining.

The company’s top strategic priority is to increase banking product engagement with its existing Cash App transaction businesses. However, federal prosecutors are examining financial transactions at the company’s main units, Square and Cash App. Additionally, Block’s banking ecosystem and ambitions could face intense competition from established banks.

Considering SQ’s slowing profitability, high valuation, regulatory issues, and intense competition, waiting for a better entry point into this stock seems wise now.

How does Block, Inc. (SQ) compare to its competitors?

Given its uncertain near-term outlook, the chances of SQ outperforming in the weeks and months ahead are compromised. However, there are many industry competitors with much more impressive POWR ratings. So, consider these three stocks A (Strong Buy) or B (Buy) from Financial Services (Enterprise) industry instead:

CPI Card Group Inc. (PMTS)

Manhattan Bridge Capital, Inc. (LOAN)

Consumer Wallet Services, Inc. (CPSS)

To explore additional A- or B-rated fintech stocks, Click here.

What to do next?

Steve Reitmeister, a 43-year investing veteran, just released his 2024 market outlook along with his trading plan and 11 top picks for the year ahead.

Stock Market Outlook 2024 >

SQ shares rose $0.04 (+0.06%) in pre-market trading on Thursday. Year-to-date, SQ is down -18.13%, compared to a 15.49% gain in the benchmark S&P 500 index over the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions. Moreover…

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

Source

Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”