Block's Cash App Not Likely To Yield Promising Margins, Analyst Says Remaining Wary Of Regulatory Headwinds

Morgan Stanley analyst James Faucette maintains Block Inc SQ with an Equal-Weight, lowering the price target from $72 to $70.
Faucette highlights that Cash App is a bank for Millennials and Gen Z. He thinks Block is effectively acquiring these customers (72% of 51 million users are Gen Z/Y) and can become a vital financial services provider to them as they mature and grow incomes and borrowing needs, similar to how Capital One Financial Corp COF expanded its banking business by pursuing the Gen X population in the 1990s.
Faucette's survey work shows that Cash App customers want a full suite of financial services. He does not expect Cash App will generate better-than-bank margins in a Tuesday note titled "Block, Inc: What If Cash App Built a Bank? Valuation & Opportunity Analysis"
Also Read: Affirm Shares Are Falling Due To Apple: Here's Why The Stock Is Reacting
He estimates Cash App can have a banking account with ~40% of the current Gen Z/Y population by 2037. He applies a standard banking multiple and an assumed discount rate to get an estimated $32 per share for Cash App + Afterpay today.
He believes detractions around AML/KYC and debit interchange revenue are well known.
The price target change reflects modest incremental uncertainty around regulation frameworks created by stresses in the broader banking system and recent Block-specific detractions related to its revenue streams.
Also Read: Block Investors Are Pulling Back, But These Analysts Are Unfazed By Short Report From 'Novice Industry Outsider'
Price Action: SQ shares traded lower by 0.86% at $63.85 on the last check Tuesday.

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