Despite a large drop in share value in recent months, digital payment provider Block Inc. (NYSE: SQ) is in a phase of rapid expansion and establishing steady profitability. Acquisitions made by the firm might be growth drivers.
The Afterpay platform, which provides buy now, pay later (BNPL) services, was one of Block’s most lucrative purchases. According to management, the purchase will soon become a type of connector between the two Block Inc. (SQ) companies – the Cash Program app for customers and the Square service for sellers.
It is expected that the increasingly popular service, which allows for payment in installments, would encourage more frequent purchases. As a result, SQ will be more appealing to sellers. It is worth mentioning that Block Inc. (SQ) increases performance even when Afterpay is not used.
Gross profit increased 34% year on year to $1.29 billion in the first quarter, while free cash flow increased to $188 million, up from a negative $63.3 million the previous year. Already, free cash flow amounted to 15% of gross profit.
This amount is anticipated to rise over time, albeit Block Inc. (SQ) is now sacrificing profitability in favor of growth and development. The free cash flow created during the last year was $965 million. Block’s earnings last year were reduced to a loss of roughly $77 million in the first quarter of this year due to acquisition-related expenditures. However, when free cash flow grows, a company’s profitability might stabilize.
Block Inc. (SQ) works in a highly competitive environment with major payment services. However, the company’s advantage is the variety of its services, as well as its ability to function in both the consumer and seller markets. While SQ shares are expected to continue volatile, the company has a solid business with significant growth potential.
Shares of Block Inc. (NYSE: SQ) have been down -1.05 percent in the last week, but are down -49.79 percent in the last quarter. Going back further, the stock’s price has been down -56.29 percent in the previous six months but is down -60.85 percent year to date.