The fintech has delivered 21% annual returns since its IPO in 2015. Can it continue to deliver?
Block (SQ 0.15%) is at the forefront of the digital payments revolution and has gained 420%, or 21%, compounded annually since its public debut. With digital payments expected to explode, does Block have what it takes to make you a millionaire? Let’s dive in and find out.
To be a millionaire maker, a stock must deliver incredible results over a long period. For example, if you start with an initial investment of $10,000, which you don’t add to over time, these are the returns you would need over various holding periods to reach the coveted million-dollar milestone:
|
Holding Period |
Compound annual return to reach $1 million |
|---|---|
|
20 years |
26% |
|
25 years |
20% |
|
30 years |
17% |
|
40 years |
12% |
As you can see, turning a stock into a million-dollar position requires much patience and hitching your wagon to a company capable of tremendous growth over time. It also takes picking the right companies because only a select few businesses can generate returns that high for multiple decades.
Block’s growing digital payments presence
Block operates a multi-pronged business that serves both businesses and individuals. Its Square point-of-sale system helps small businesses process payments and manage sales, and it was the company’s earliest offering. The software eliminated bulky hardware and empowered small businesses to easily accept payments using a smartphone or tablet.
The Cash App is Block’s financial platform, and it has grown into one of the most popular investing apps among younger generations. Originally a peer-to-peer payments app, the Cash App has bloomed into a full-blown financial services app, allowing users to bank, invest in stocks and Bitcoin, and get loans through Afterpay, the buy now, pay later service Block acquired in 2022.
According to the Motley Fool’s Generational Investing Tools survey, across 2,000 U.S. adults, the Cash App is the most used investing app, with 38% of all respondents saying they use it. Usage is higher among younger generations, with 54% of millennials and 50% of Gen Z using the Cash App to invest.
What’s next for Block?
Block’s Cash App is well-positioned among younger generations, which should help provide a good tailwind for its longer-term growth. However, Block isn’t resting on its laurels.
CEO Jack Dorsey detailed how Block would streamline operations and become more efficient in reaching the “rule of 40,” meaning its gross profit growth and adjusted operating income margin would add up to 40% by 2026. To accomplish this, Block capped its employee count and cut costs to improve the bottom line.
The company aims to grow Cash App usage, specifically targeting households earning $150,000 or more by offering high yields on savings accounts. The fintech is also building tools to help customers manage spending and subscriptions, improve their credit, and access Afterpay.
It has also reorganized its Square team to focus on integrating generative artificial intelligence (AI) into its product to help sellers grow and manage more tasks to help them scale. Dorsey says he wants the “seller platform to be our superpower.”
Dorsey also said that the company wants to do a better job of integrating Square and Cash App, saying: “We believe combining the two ecosystems enables us to provide consumer experiences others can’t, specifically for commerce.” Such efforts could help Block build a closed-loop payments system, providing network effects that could further strengthen its position in the highly competitive payments industry.
Image source: Getty Images.
Bitcoin will also be a key component of Block’s long-term plans. In 2018, the company began allowing customers to buy Bitcoin through its app. Block will continue to bet on the cryptocurrency’s future success, investing up to 10% of its gross profit from Bitcoin to purchase more Bitcoin.
Dorsey thinks Bitcoin pices can reach $1 million by 2030, and Ark Invest CEO Cathie Wood is even more optimistic, projecting that Bitcoin could reach $3.8 million.
Can Block be a millionaire-maker?
It’s important to remember that reaching one million dollars from an investment requires time, patience, and riding with a stock through thick and thin. For this reason, it’s essential to maintain a long-term perspective on your investments by focusing on the next decade and beyond.
Block is working to integrate its payment products better so they are synchronized, which could help it build up its closed-loop payments network. Block is well positioned, with the digital payment market projected to grow by 17.4% through 2032. If Bitcoin explodes in value, it could be another significant driver of Block’s long-term growth, giving it excellent long-term potential.
However, investors should be wise and hold it as part of a diversified portfolio across stocks, rather than rely on any single investment to drive results. After all, your best bet for building lasting long-term wealth is consistently saving and investing over time, and I believe Block can be a good piece of that puzzle.