If you want to know how to research Block stock, start with its business model: understand how Square and Cash App each generate revenue. Then move to financial metrics that matter for fintech companies, like gross profit growth and take rate. From there, evaluate valuation relative to peers, assess competitive positioning against other payment processors and neobanks, and map out the risks that could derail the thesis. That sequence gives you a structured SQ due diligence process instead of a random collection of data points.
Key takeaways
- Block operates two distinct ecosystems (Square for merchants, Cash App for consumers), and each has different growth drivers and margin profiles you need to evaluate separately.
- Gross profit is a more useful top-line metric than revenue for Block because of how it accounts for Bitcoin transactions flowing through Cash App.
- A Block research guide should include competitive analysis against PayPal, Toast, Stripe, and traditional banks, not just fintech peers.
- Management execution on cost discipline and ecosystem integration (linking Square sellers with Cash App users) is one of the most important qualitative factors to track.
- No single metric tells the whole story. Combine financial analysis with qualitative assessment of the business model, leadership, and regulatory environment.
Why does business model analysis come first when you research Block stock?
Before you look at a single number, you need to understand what the company actually does and how it makes money. Block has two major platforms, and they serve different customers with different economics. Skipping this step means you'll misinterpret the financials later.
Square is the seller-facing side. It provides point-of-sale hardware, payment processing, payroll, invoicing, and lending products to businesses ranging from food trucks to mid-market retailers. Revenue here comes primarily from transaction fees (a percentage of each payment processed) plus subscriptions for software tools.
Cash App is the consumer-facing side. It started as a peer-to-peer payment app and has expanded into direct deposit, a debit card (Cash App Card), stock and Bitcoin trading, and the "Afterpay" buy-now-pay-later service Block acquired. Cash App monetizes through interchange fees on card transactions, instant transfer fees, and Bitcoin spreads.
Take rate: The percentage of total payment volume that a payment processor keeps as revenue. For Block's Square segment, this reflects pricing power and the mix of services merchants use. A declining take rate can signal competitive pressure or a shift toward larger merchants who negotiate lower fees.
Here's the thing about Block that trips up new investors: the two ecosystems are supposed to feed each other. Square merchants can offer Cash App Pay at checkout, and Cash App users get routed toward Square sellers. Whether this flywheel actually works at scale is one of the central questions in any Block research guide. If it does, Block has a compounding network effect. If it doesn't, you're looking at two decent-but-separate businesses bolted together.
Which financial metrics matter most for how to analyze SQ?
Fintech companies don't always fit neatly into traditional valuation frameworks. Here's what to prioritize when running SQ due diligence on the financial side.
Gross profit over revenue
Block's reported revenue includes the full dollar value of Bitcoin that flows through Cash App. Because Block buys Bitcoin at market price and sells it to users at a small markup, those billions in Bitcoin revenue come with almost no margin. If you focus on top-line revenue, you'll get a distorted picture of the business. Gross profit strips out those pass-through costs and shows you the actual economic value Block captures.
Gross profit growth by segment
Break it apart. Look at how Square's gross profit is growing versus Cash App's. If one segment is carrying the other, that matters for your thesis. Cash App has generally been the faster grower, but Square's trajectory tells you whether the core merchant business is gaining or losing traction.
Adjusted operating income and free cash flow
Block has historically spent aggressively on stock-based compensation, acquisitions, and product development. Check whether the company is trending toward consistent free cash flow generation and what its stock-based compensation looks like as a percentage of revenue. High SBC dilutes shareholders, so it's worth tracking even when earnings headlines look positive.
Stock-based compensation (SBC): Non-cash expense where companies pay employees with equity instead of cash. It doesn't reduce cash flow directly, but it dilutes existing shareholders over time. Companies that rely heavily on SBC can report strong cash flow while quietly shrinking your ownership stake.
Cash App monetization per user
How much gross profit does Cash App generate per monthly active user? This tells you whether the platform is getting better at extracting value from its user base through products like the Cash App Card, direct deposit, and Afterpay. Rising monetization per user often matters more than raw user growth.
Rule of 40
Some investors apply the Rule of 40 to fintech companies: add the revenue (or gross profit) growth rate to the profit margin. A combined score above 40 suggests a healthy balance between growth and profitability. It's a rough heuristic, not gospel, but it gives you a quick way to benchmark Block against peers.
You can pull most of these metrics from Block's earnings reports and investor presentations. If you want a faster starting point, the Block (SQ) research page on Rallies.ai aggregates financial data and AI-generated analysis in one place.
How to evaluate Block's valuation relative to peers
Valuation is where many investors jump in first, but it should come after you understand the business and the financials. Without that context, a P/E ratio is just a number.
For Block, the most common valuation approaches include:
- Price-to-gross-profit ratio: Since revenue is misleading (Bitcoin pass-through), many analysts value Block on a multiple of gross profit instead. Compare this to other fintech and payment companies like PayPal, Adyen, and Toast.
- EV/EBITDA or EV/gross profit: Enterprise value-based metrics account for debt and cash on the balance sheet, giving you a cleaner comparison across companies with different capital structures.
- Price-to-free-cash-flow: If Block is generating meaningful free cash flow, this ratio tells you what you're paying per dollar of cash the business produces. Compare it to the growth rate to see if the premium makes sense.
A few things to watch: fintech valuations tend to swing widely based on interest rate expectations and investor appetite for growth stocks. A company trading at a "high" multiple during one period might look cheap six months later if growth accelerates, or vice versa. The point isn't to find a single "right" number. It's to understand what assumptions the market is embedding in the price and whether you agree with them.
If you want to compare Block's valuation against other fintech and payment names side by side, the Rallies.ai stock screener lets you filter by financial metrics across sectors.
What does Block's competitive position look like?
Competition is the part of due diligence that's easy to underestimate because it requires qualitative judgment, not just spreadsheets. Block competes on multiple fronts, and the competitive dynamics differ for each.
Square's competitive landscape
In merchant services, Square faces pressure from Toast (which dominates restaurants), Shopify (e-commerce merchants), Clover (owned by Fiserv), and Stripe (which powers online payments for larger businesses). The question is whether Square can move upmarket to serve larger merchants while defending its small-business base. Larger merchants bring more volume but lower margins and longer sales cycles.
Cash App's competitive landscape
Cash App competes with Venmo (owned by PayPal), Zelle (bank-backed), Apple Pay, and traditional banks offering mobile banking features. The differentiator for Cash App has been its appeal to younger, underbanked demographics and its expansion into financial services beyond simple payments. But traditional banks are getting better at mobile, and Apple keeps expanding its financial products.
The integration question
Block's strategic bet is that connecting Square and Cash App creates something competitors can't easily replicate: a two-sided network linking merchants and consumers. This is the bull case. The bear case is that most consumers don't care whether their payment app connects to their local coffee shop's POS system, and the integration adds complexity without meaningful revenue lift.
When building your own Block research guide, spend time reading what merchants and consumers actually say about these products. App store reviews, merchant forums, and even Reddit threads can give you ground-level signal that financial statements miss.
What are the main risks in an SQ due diligence process?
Every investment thesis has vulnerabilities. Here are the ones that matter most for Block.
- Regulatory risk: Block operates a bank (Square Financial Services) and facilitates Bitcoin trading. Both activities attract regulatory scrutiny. Changes to fintech lending regulations, cryptocurrency rules, or money transmission requirements could increase compliance costs or restrict product offerings.
- Credit risk: Block lends money to merchants (Square Loans) and consumers (Afterpay). In an economic downturn, default rates on these loans could spike. Track provisions for loan losses as a percentage of the lending portfolio.
- Bitcoin exposure: Block holds Bitcoin on its balance sheet and processes Bitcoin transactions through Cash App. This creates direct exposure to Bitcoin price volatility, which can swing earnings and investor sentiment regardless of how the core business performs.
- Execution risk: Integrating Afterpay, building out banking products, expanding internationally, and moving upmarket simultaneously is a lot. Management bandwidth and focus are real constraints. If Block spreads too thin, no single initiative gets the attention it needs.
- Competition and margin pressure: Payment processing is a scale game with thin margins. If larger competitors like Apple, Google, or traditional banks aggressively enter Block's markets, pricing pressure could compress margins even as volume grows.
- Key person risk: Jack Dorsey, as CEO and a dominant shareholder, has significant influence over Block's strategy. His public focus on Bitcoin and decentralization is a feature for some investors and a concern for others.
None of these risks are automatic deal-breakers. The point of identifying them is to decide which ones you can tolerate and which ones would change your thesis if they materialized. That's how to analyze SQ with intellectual honesty rather than just looking for confirmation of what you already believe.
Putting it all together: a step-by-step Block research framework
Here's the sequence, condensed into a checklist you can follow:
- Business model: Map out Square and Cash App separately. Understand revenue sources, customer types, and how the two ecosystems are supposed to interact.
- Financial metrics: Focus on gross profit (not revenue), segment-level growth, free cash flow trends, stock-based compensation, and Cash App monetization per user.
- Valuation: Use gross profit-based multiples and compare to fintech peers. Understand what growth assumptions are baked into the current price.
- Competitive position: Assess threats from both fintech competitors and traditional financial institutions. Evaluate whether the Square-Cash App integration creates a real moat.
- Risks: Identify regulatory, credit, Bitcoin, execution, and competitive risks. Decide which are priced in and which could surprise the market.
- Management and capital allocation: Review how leadership allocates capital (buybacks vs. acquisitions vs. R&D), how much stock-based compensation dilutes shareholders, and whether stated strategic priorities align with where the money actually goes.
This framework works whether you're bullish, bearish, or undecided. The goal is to build a complete picture before forming an opinion, not after. For a deeper dive into structured research approaches, check out the Rallies.ai investing guides for more frameworks like this one.
Try it yourself
Want to run this kind of analysis on your own? Copy any of these prompts and paste them into the Rallies AI Research Assistant:
- Walk me through how to research Block (SQ) from scratch — what are the key parts of their business model I should understand, which financial metrics matter most for a fintech company like this, and what are the main risks I should be aware of before considering it as an investment?
- If I'm researching Block for the first time, what's the step-by-step process? What should I look at first?
- Compare Block's Cash App monetization model to PayPal's Venmo — what are the differences in how each platform generates revenue from consumers, and which approach has more room to grow?
Frequently asked questions
What is the best way to start SQ due diligence?
Start with Block's business model. Understand how Square (merchant services) and Cash App (consumer finance) each generate revenue and gross profit. This gives you the context to interpret every financial metric that comes after. Without knowing what the company does, ratios and growth rates are meaningless numbers.
Why is gross profit more important than revenue when you analyze Block?
Block's revenue includes the full notional value of Bitcoin transactions processed through Cash App. Because Bitcoin is bought and resold at near-zero margin, revenue dramatically overstates the economic value Block captures. Gross profit strips out these pass-through costs and shows what the company actually earns from its operations.
How does Block make money from Cash App?
Cash App generates revenue through several channels: interchange fees when users spend with the Cash App Card, fees for instant transfers to external bank accounts, a spread on Bitcoin purchases, and buy-now-pay-later fees through the integrated Afterpay service. The Cash App Card is a particularly important driver because it converts passive app users into active daily spenders.
What are the biggest risks of investing in Block?
The main risks include regulatory changes affecting fintech lending or cryptocurrency, credit losses on Square Loans and Afterpay during economic downturns, Bitcoin price volatility impacting earnings and balance sheet value, and intense competition from both fintech startups and traditional banks expanding their digital offerings. Each investor needs to weigh these against the potential upside.
How do I compare Block's valuation to other fintech companies?
Use gross profit-based multiples rather than revenue-based ones, since Block's revenue is inflated by Bitcoin pass-through. Compare price-to-gross-profit or EV-to-gross-profit ratios against peers like PayPal, Adyen, and Toast. Also compare growth rates alongside those multiples, because a higher valuation is more justified if accompanied by faster gross profit growth.
Is Block's Square and Cash App integration actually working?
This is one of the most debated questions in any Block research guide. Management has pointed to Cash App Pay adoption at Square merchants and cross-platform features as evidence. Skeptics argue that consumer payment behavior is sticky and most people don't choose a payment method based on their local merchant's POS system. Track metrics like Cash App Pay transaction volume at Square merchants over time to form your own view.
Bottom line
Learning how to research Block stock comes down to following a logical sequence: business model first, financials second, valuation third, competitive analysis fourth, and risk assessment last. Each step builds on the one before it, and skipping ahead usually means missing something that changes the picture. Block is a complex company with two distinct ecosystems, Bitcoin exposure, and an ambitious integration thesis, so surface-level analysis won't cut it.
Use the framework above as your starting point, adapt it to your own investment criteria, and do your own research before making any decisions. For more step-by-step guides on researching individual stocks and building an investment process, explore the Rallies.ai guides library.
Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other type of advice. Rallies.ai does not recommend that any security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. Before making any investment decision, consult with a qualified financial advisor and conduct your own research.
Written by Gav Blaxberg, CEO of WOLF Financial and Co-Founder of Rallies.ai.