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They told investors in a research note that the company’s growth deceleration limits its share price upside. The company’s shares are down around 2.6% premarket.
“In 2H/23E and 2024E, Block gross profit growth will likely slow given softening of consumer discretionary spending, a slowdown in Cash App monthly active user growth and moderation of Cash App monetization rates,” the analysts explained.
“While Block continues to make progress on profitability and repeatedly outperforms quarterly expectations on adjusted EBITDA, investors remain more focused on Block’s gross profit growth potential, we believe.”
The “lack of catalysts in sight” and a re-acceleration of gross profit growth being unlikely for SQ means UBS sees limited upside potential.
Even so, the firm contends that with the company’s shares trading near a 5-year low EV/Gross Profit multiple of 4x, it suggests the market has largely priced in the potential for decelerating gross profit growth next year.
