Block Is Fair Priced As Payday Lending Could Pressurize Valuation With Rising Delinquencies, Analyst Says

  • Mizuho analyst Dan Dolev maintained Block, Inc SQ with a Neutral and raised the price target from $57 to $69.
  • Payday lending (dubbed 'Borrow') is increasingly meaningful to Cash App gross-profit growth. 
  • Payday lending is a near-term boost to inflows, but he worried it might pressure SQ's multiple as delinquencies across consumer lending continue to rise. 
  • This is particularly concerning given Cash App's skew towards lower-income households. 
  • SQ management shies away from providing exact dollar contributions from 'Borrow.' 
  • Dolev estimated that $35 million -40 million of the sequential increase in 3Q Cash App GP ex-Afterpay reflected an increase in payday lending as a percentage of the mix. 
  • It may account for well over >5% of Cash App GP ex-Afterpay. 
  • The price target change reflected a higher 2022E.
  • Price Action: SQ shares traded lower by 5.63% at $69.25 on the last check Wednesday.
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