Block, Inc. (XYZ)

By both methods, the value today (DCF $183 · Multiples $118) exceeds the market price ($77).

Today — fairly valued: at $77 trades ~34.9% below its value discounted to today (~$118); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($147) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$73.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($77) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.2%/year) than we project (20.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$2.1 bn of owner earnings in year 5 (vs ~$5.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EBIT (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Block is valued on EV/EBIT, the metric §4 assigns to payments and acquiring, and which expenses stock-based compensation on its own: it is US$1,201 million over the last twelve months, barely 4.8% of revenue but 30.9% of free cash flow, so valuing on reported flow would give away almost a third of the result. Year 0 is the twelve-month period ended 30-Jun-2026 and its margin is normalized on the adjusted operating income the company itself reconciles in its release: US$2,659.5 million TTM (GAAP EBIT of US$1,170 million plus the real charges for contingencies, restructuring and other, restructuring stock-based compensation, and other adjustments) less US$190.0 million of acquired intangible amortization that this measure excludes, for a normalized EBIT of US$2,470 million. The path starts from the guidance in the release of 5-Aug-2026, not from the trajectory: the company raised its forecast to US$12,510 million of gross profit for 2026 (21% growth) with adjusted operating income of US$3,470 million and adjusted diluted earnings per share of US$4.02. That guidance enters through the margin and not through the revenue level, because reported revenue includes the Bitcoin ecosystem line —35% of revenue and 4% of gross profit— which fell 18% in 2025 and flattens top-line growth while gross profit grows at a high double-digit rate. Cash does not accumulate: the surplus is redeployed into the proprietary credit book, which is growing at a triple-digit rate in originations, and the buyback is modeled explicitly at 1.5% a year of net reduction, below the 2.1% that diluted shares revealed between 2024 and 2025. Cash and debt are those on the balance sheet at 30-Jun-2026: US$6,427 million of cash against US$5,721 million of long-term debt plus US$1,162 million of warehouse funding facilities for the credit book.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $147 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $77, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $147 in 5 years and a required return of 4.5% annually, the maximum to pay today is $118. Against the current market price ($77), the margin of safety is 34.9% (trades below the maximum → there is margin) and the total return at that price would be 13.9% annually.

• Entry multiple. 19× on today's normalized EBIT, on a base depressed by restructuring charges; the entry cheapens to 9× by year five.
• Exit multiple. A blend of 16 and 16.5 times EBIT by piece, within the method's 15-to-20 band for payments and acquiring.
• Estimated return. +14% annually with no dividend, against +14% in the adverse scenario and +14% in the favorable one.
• Dependence on margin. Nearly all the value depends on the guided margin expansion holding up: with the adverse scenario's margin, the return turns negative.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (112%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. Operating cash flow of $4,057 million over the trailing twelve months against capex of just $176 million, though part of the flow reflects the movement of customer funds rather than owner surplus.
• Return on capital. 5.6% on total invested capital, below the 10% bar; near 13.6% excluding the goodwill inherited from acquisitions.
• Reinvestment runway. The proprietary credit book absorbs capital with returns not yet proven through a downturn, and capex is marginal: reinvestment runs through the lender's balance sheet.
• Earnings quality. Stock-based compensation equals 30.9% of free cash flow, so the valuation metric expenses it; 2024 income was inflated by the recognition of deferred tax assets.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Block is measured by gross profit, not revenue, and the reason is arithmetic: bitcoin sales to customers are recognized at gross value, so the Bitcoin ecosystem accounted for 35% of 2025 revenue and just 4% of gross profit. That is why revenue grew 0.3% for the year while gross profit grew at a double-digit rate. The three real engines are each segment's gross profit and the financial solutions line, which groups Cash App Borrow credit, Square's loans and instant deposit. The breakdown by business driver is volume times monetization: for merchants, gross payment volume times processing fee; for consumers, funds inflows times monetization rate; and for credit, originated balance times net loss spread.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Gross-profit growth. 25% year over year in the second quarter of 2026, with 31% in the consumer business and 13% in the merchant business.
• Revenue growth. 0.3% in 2025 and 5.1% over the trailing twelve months, flattened by the 18% decline of the Bitcoin ecosystem, which enters at its gross value.
• Current guidance. The company raised its 2026 outlook to $12,510 million of gross profit, $3,470 million of adjusted operating income and $4.02 of adjusted diluted earnings per share.
• Growth engine. Consumer credit originations grew 59% year over year: the engine is real but it transfers credit risk onto the income statement.

• Recurrence and relevance ten years out. Accepting payments and moving money are permanent needs; the risk is not that the service disappears but who provides it.
• Differentiated product. The integrated ecosystem of more than thirty products differentiates against stitching together providers, but processing itself is a service comparable on price.
• Pricing power. The company discloses transparent pricing with no long-term contracts, and in 2026 it voluntarily cut the fee on certain bitcoin transactions: pricing power is limited.
• Operating leverage. Adjusted operating income grew 57% year over year while gross profit grew 25%: the cost structure is mostly fixed and scale is showing.
• Customer concentration. No customer exceeded 5% of merchant gross payment volume over the last three fiscal years, across more than 4.5 million sellers.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.2x
• ✓Interest coverage (EBIT / interest)11.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 112% of ROIC
• ✕Value creation (ROIC − 10% bar)-4pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.5x — no over-investment
• –Float / working capitalNeutral WC
• !Dilution (SBC % of revenue + shares)SBC 4.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Cash against debt. $6,427 million of cash against $5,721 million of long-term debt, with the current portion retired in the first half of 2026.
• Funding for the credit book. $1,162 million of wholesale facilities against $6,227 million of receivables between loans held for investment and consumer receivables.
• Customer funds. $5,530 million of customer funds against $7,629 million payable to customers: this is operating funding, not excess cash, and is not counted as such.
• Maturities. The convertible and senior notes have staggered maturities through 2033, with holders entitled to require repurchase on a change of control.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

The split is anchored in actual uses: $1,894 million of buybacks in the twelve months ended June 2026 against $176 million of capex and net growth of the proprietary book —loans held for investment rose $366 million in the first half while consumer receivables fell $192 million, for a net of $174 million—. With buybacks of 1,894 and reinvestment of 0.176+0.174=0.350, the split is 84% buybacks and 16% reinvestment. There was no dividend or material acquisitions in the period; there was debt retirement, with the current portion of long-term debt going from $1,573 million in December 2025 to zero in June 2026.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital return. No dividend and sustained buybacks: $2,300 million in 2025 and $701 million in the first half of 2026, with $4,600 million of authorization outstanding.
• Acquisition track record. The price paid for Afterpay left $13,167 million of goodwill and intangibles on the balance sheet, which are the main reason for the 5.6% return on invested capital.
• Cost discipline. The February 2026 plan cuts headcount by more than 40% with charges of $450 to $500 million: a difficult decision taken in time, with execution risk disclosed by the company itself.
• Alignment and governance. Dual-class structure: the founder and board chair holds 42.2% of voting power with less than 8% of the economics, and directors and executives control 53.3% of the vote —a majority— because Class B carries ten votes per share.

• Motivated sellers driven by a depressed accounting result: the twelve months ended June carry the $450-500 million of the February 2026 restructuring plan and a bitcoin remeasurement loss, so GAAP operating income fell just as adjusted operating income grew 57% year over year.
• Missing buyers due to a misleading headline metric: revenue grew 0.3% in 2025 and 5.1% over the trailing twelve months because the Bitcoin ecosystem —35% of revenue, 4% of gross profit— fell 18%, while the metric the company actually manages grew 25% year over year in the quarter.
• The gap between the GAAP and adjusted results is structural, not presentational: amortization of intangibles acquired with Afterpay and restructuring charges separate the two figures, and the GAAP result is the one that shows up on stock screeners.
• Consumer credit, which is today the fastest-growing line, is also the one demanding the biggest discount: a young book growing 59% year over year reads as risk before it reads as income.

The source of the discount is identifiable and positive: it is not that the business is broken, but that the two headline metrics —revenue growth and GAAP operating income— point in the opposite direction from the business's economics, and for reasons verifiable in the filings. The gross sale of bitcoin inflates the revenue base without margin, so its decline flattens consolidated growth; and the charges from a restructuring announced in February 2026 depress the period's operating income exactly as the savings start to show up. What cannot be ruled out is the opposite reading, which is also defensible: that the market is discounting the credit cycle of a consumer book that tripled its origination pace without having been through a downturn, plus the regulatory exposure of a company with an open federal investigation and a signed consent order. That second reading is what the adverse scenario tests.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at ~0%/year (+2% total): the margin of safety protects the downside. The bull (+21%/year, +162% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Credit cycle. A consumer book that tripled its origination pace in a year has not yet been through a downturn; the expected loss on a young book is understated when the balance is growing fast.
• Execution after the cut. A headcount reduction of more than 40% with disclosed reliance on automated tools for compliance and risk management.
• Regulation. Open federal investigation dating to March 2023 and a January 2025 consent order over deficiencies in the anti-money-laundering program.
• Bitcoin exposure. The proprietary holding is remeasured against income each quarter: a loss of $55.9 million in 2025 following a gain of $420.9 million in 2024.
• Competition. Competes with acquirers, banks, digital wallets, brokerages and buy-now-pay-later providers, with no long-term contracts to retain the customer.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 6% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A hyper-growth growing 20% at a multiple/growth of 1.0 → cheap for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 6% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -0% vs our 20%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +0%/yr, bull-scenario ceiling +21%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: network effects, intangibles, switching costs, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -0%, within what we project (20%) — the story squares with the numbers.