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Block Inc – CDI (XYZ)

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Question asked 24/05/2025

Block Inc – CDI (XYZ)

Hi James, Shawn, and Team, I have considered investing in Block (XYZ) several times due to its strong long-term fundamentals; namely, it is a technology company that provides payment solutions and services that could potentially substitute traditional banks. While I understand that Australian banks have different financial profiles and are primarily focused on mortgages with distinct risk factors compared to Block, would it be uncommon to shift some of my bank investments towards purchasing Block instead? I do not need individual advice a general answer is fine. I found it challenging to frame this question because I believe I already have an idea of what your response might be. Additionally, I would like to know your thoughts on Block's current and future valuation. Regards, Michael

Answer

Hi Michael,

We have considered Block (XYZ) a few times in recent years for similar reasons and fortunately so far, we’ve kept away. XYZ has experienced a significant decline in its share price through 2025, with the stock down ~26% year-to-date. Several factors have contributed to this correction:

Earlier this month they lowered its profit growth forecast for the year from 15% to 12%, citing macroeconomic headwinds and weaker-than-expected consumer spending.
Block’s first-quarter results fell short of analyst expectations with revenue missing by ~6.8%.

Block is now a $56bn business trading on a CY25 17.5x valuation which is reasonably compelling as other financial, stocks push ever higher and relative to both its near-term growth prospects, and long-term potential. The investment thesis in XYZ is supported by a robust payment’s ecosystem, further operating leverage, and strategic investments in marketing and product development.

We view the recent sharp correction an opportunity to buy this high-quality growth stock poised for recovery, but note it’s an aggressive “recovery play”, and needs a healthy US consumer.

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Block Inc CDI (XYZ)

LAST UPDATED 23/05/2025 12:55

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