Block, Inc. (XYZ)
Servicios financieros — pagos y fintech de consumo
Two payments businesses with different economics —Square for sellers and Cash App for consumers— under one balance sheet, with the revenue line flattened by a near-zero-margin bitcoin line while gross profit grows 25% and operating profitability reaches an inflection point: Undervalued at $82, with an estimated annual return of +12% on a five-year value of $147.
- Price
- $82.13
- Intrinsic value (5y, base)
- $147
- Total annual return (5y)
- 12.3%
- Status (nominal)
- Undervalued
- Margin of safety
- +30%
The essentials
- The company runs the business on gross profit, not revenue: in the second quarter of 2026 it grew 25% year over year (Cash App 31%, Square 13%) while reported revenue rose just 5.1% over the trailing twelve-month period, because the Bitcoin ecosystem —35% of revenue and 4% of gross profit— fell 18% in 2025.
- Guidance raised on August 5, 2026 calls for $12,510 million in gross profit for 2026 (21% growth), adjusted operating income of $3,470 million and adjusted diluted earnings per share of $4.02; the adjusted operating margin already hit a peak of 27% of gross profit in the quarter.
- Return on invested capital comes in at 5.6%, below the 10% bar, and the reason is the price paid for Afterpay: acquired goodwill and intangibles total $13,167 million, 59% of invested capital. Measured on operating capital the return is closer to 13.6%.
- Valued at 20× on normalized EBIT, and the entry multiple cheapens to 10× by year five; buybacks retired shares at a 2.1% net rate between 2024 and 2025, with $4,600 million of authorization still outstanding.
Intrinsic value — two valuation methods
By both methods, the value today (DCF $183 · Multiples $118) exceeds the market price ($82).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $82 trades ~30.4% 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.
Thesis
The business
Two payments ecosystems that share a balance sheet but not economics: one sells to merchants and grows at the pace of volume (13% gross profit growth in the quarter), the other sells to consumers and grows much faster (31%), supported by card, buy-now-pay-later and short-term credit. Running across both is a bitcoin line that inflates revenue without contributing margin, and a marginal music platform. Quality is uneven: cash generation is strong, but return on invested capital comes in at 5.6% because of the Afterpay goodwill.
The valuation
Valued by sum of the parts, with EV/EBIT on each piece: the seller ecosystem at 16 times and the consumer ecosystem at 16.5, both within the 15-to-20-times band the method assigns to payments and acquiring. The blend comes to 20× on today's normalized EBIT and 10× by year five, once the operating margin fully reflects the restructuring. The five-year value comes to $147 per share against $82 in the market.
The margin of safety
It trades at a real discount to value, though short of the required margin of safety. The estimated annual return is +12% with no dividend —the company does not pay one and returns capital only through buybacks—, against +12% in the adverse scenario and +12% in the favorable one. The gap between the three is wide because nearly all the value depends on the guided margin expansion holding up after the headcount cut.
What to watch
The disconfirmer is consumer credit: if Cash App Borrow delinquencies rise in a downturn, it takes down at once the fastest-growing gross profit line and the capital that funds it. The second test is execution after cutting headcount by more than 40%, which the company itself flags as a risk of lost institutional knowledge and weaker compliance governance.
Educational / informational. Does not constitute investment advice.