There’s a new kid on the Block (ASX:SQ2), but how does it make money?

Here’s a look at where all of those billions come from…

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a small boy dressed in a bow tie and britches looks up from a pile of books with a book laid in front of him on a desk and an abacus on the other side, as though he is an accountant scouring books of figures.

Image source: Getty Images

The Australian share market welcomed a new resident last week when Block Inc (ASX: SQ2) made its debut on the ASX. Since listing, the United States-based financial services and digital payments company has shaved 6% off its share price.

Notably, Block makes a considerable splash on the ASX. With a market capitalisation of ~A$75.7 billion, the company slots in as the sixth-largest listed on the Aussie boards. As a point of reference, that places it above Westpac Banking Corp (ASX: WBC).

With that in mind, it might be worth taking a look at how this new kid on the block makes its money.

How does the newly ASX-listed Block make money?

When it comes to companies, how they make money is possibly one of the most important questions to ask. Ultimately, sales of a product or service are what drive future earnings. So, what are investors buying into with Block on the ASX?

Firstly, Aussie investors will be aware that Block incorporates the now de-listed buy now, pay later (BNPL) giant Afterpay Ltd (ASX: APT). In FY21, the BNPL company pulled in $836 million in revenue. However, this was accompanied by a $156 million loss on the bottom line.

The remaining components of Block are likely less familiar to ASX investors. Under the Block banner, there are several companies operating across various industries. These include:

  • Square — point of sale system provider
  • Cash App — mobile payment service, enabling money transfers
  • TIDAL — subscription-based music streaming service
  • TBD54566975 — decentralised financial services development

At present, the bulk of Block’s business is centred around Square and Cash App. To know exactly how much money these segments are delivering we can take a look at Block’s FY21 third-quarter results.

In Q3, Block recorded US$3.84 billion in revenue for the quarter. Approximately 36% of this revenue was derived from the ‘seller ecosystem’ which encompasses Square’s point of sale hardware and software sales.

Another 62% of revenue, or US$2.39 billion, came from the Cash App ecosystem. This revenue comes from fees on peer-to-peer and cross-border transactions.

How fast is Block growing?

Now being listed on the ASX, Block is one of the fastest-growing names positioned among the top 10 largest companies on the ASX.

Although revenue growth tapered in the last quarter, Block still increased net revenue by 27% year-on-year. However, 2020 and 2021 were years that saw Block growing revenue at triple-digit rates.

TradingView Chart

As shown in the chart above, total net revenue has been on a downtrend for the last few quarters. Evidently, this has had an impact on the Block share price.

Since October 2021, the US-listed Block share price has plummeted 56% to its current price of US$117.30. However, the recently added ASX-listed Block share price is swapping hands at A$158.23. The difference between these values accounts for currency conversion.

Should you invest $1,000 in Block right now?

Before you consider Block, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Block wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Block, Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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