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Why Block’s New Focus Will Make It A Strong Investment

Wall Street may want to brace for volatility in Block (NYSE:SQ) and the SQ stock share price on Thursday. The company will report its fourth quarter and fiscal year 2021 financial results after market close on Thursday. In turn, this might hav…

Wall Street may want to brace for volatility in Block (NYSE:SQ) and the SQ stock share price on Thursday. The company will report its fourth quarter and fiscal year 2021 financial results after market close on Thursday. In turn, this might have an effect on the company’s share price. However, macroeconomic events and other factors are also likely to affect overall market sentiment.

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Investors have been growing increasingly concerned about the conflict in Europe. And after Russian President Vladimir Putin’s formal acknowledgment of rebel-held regions of Ukraine, troops have been ordered into those locations by Moscow. Now, the conflict in Europe is weighing on stocks and the broader market, leading to some frustration among investors.

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Moreover, stock prices have been lower than usual due to this build-up, and other outside factors like inflation — which has been on the rise lately.

The Federal Reserve is set to raise interest rates at some point this year, and they could possibly begin as early as next month. The reason profitability can suffer when rates go up is that lenders have to charge higher interest rates as compensation. This causes businesses to borrow less money because they are unwilling to pay the increased cost of borrowing.

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With all of this in mind, long-term investors might not see the best investment opportunities. But I want to make sure that they’re still getting a consistent return on their investments. That said, investors should now expect more volatility from SQ stock in the near future as the company tries to find its footing.

Overall, CEO Jack Dorsey recently changed its name from “Square” to Block, reflecting the company’s new focus on cryptocurrencies and blockchain. The company also has a very solid operating model. Therefore, if you are an aggressive investor, the time to invest in SQ stock is now.

How Block Is Changing The Game

As touched on earlier, the company changed its name back in December. Now, the firm is focusing on building a crypto-based financial ecosystem and is no longer just a point-of-sale hardware company.

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Additionally, Dorsey resigned as CEO of Twitter (NYSE:TWTR) in late November. In turn, this decision should bode well for Block in the long run. Dorsey split his time between two companies for so long, and now he can dedicate himself to Block and its new focus.

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Furthermore, Block’s acquisition of its fintech competitor, Afterpay, for $29 billion was a massive move for the company. In fact, according to JPMorgan analyst, Tien-tsin Huang, the purchase will boost Block’s gross profit at a compound annual growth rate (CAGR) of 26% through 2024. Also, Afterpay will assist Block in a variety of ways, including helping the company connect its consumer and seller segments.

Blockchain Focus

Overall, Block is betting that decentralized finance (DeFI) could be the future of financial transactions. Block already has a strong position in this space with Cash App, and they see blockchain technology — where transactions are recorded on an open ledger — as just another evolution for them to explore going forward.

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With that in mind, Block has been making moves with this new blockchain focus. In fact, the company recently announced it will be one of the first customers to use Intel’s (NASDAQ:INTC) new accelerator chip for crypto mining purposes.

Intel has designed a new chip with 1,000 times better performance per watt than graphics processors. It’s also built to be very energy-efficient — something that Bitcoin (BTC-USD) miners could benefit from. Block’s goal is to make mining more distributed and efficient with an open-source system that uses the power of Intel chips.

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Of course, investing in Bitcoin mining has always been exciting for investors, but it is relatively risky. That said, there are many opportunities for growth and Block is a perfect place to see potential value grow. And it also has a strong presence in the financial technology (FinTech) space.

When Square changed its name to Block in December, many people thought that the company was simply trying out new marketing campaigns. But now, it seems like they’re serious about cryptocurrency and blockchain technology. And this Intel announcement is just another indication of this shift for them.

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Bottom Line on SQ Stock

Growth stocks and technology companies held up well during the final months of 2021 when many other sectors fell from near-term economic concerns. Many of the underlying factors were influenced by the economy. For example, inflation concerns could cause consumers to hold onto their own cash longer, devote less of it to purchases and investments and thus, limit the near-term potential of Block.

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However, some people are seeing the potential in SQ stock. In fact, noted investor Cathie Wood’s Ark Invest funds grabbed $62.6 million in Block shares earlier this month and sold more than 722,000 shares of TWTR stock. That’s quite the endorsement.

So, although SQ stock is currently sitting at mid-pandemic levels, Block has been engineering an epic fintech behemoth that will revolutionize the financial industry. This company has crafted its strategy for long-term success and does not seem concerned about short-term issues such as inflation or consumer spending on their products.

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Collectively, Block is an emerging company, and its stock price is often volatile. And although the valuation of their ecosystem hasn’t been as high as some competitors at this point, SQ stock might become a wise investment based on the firm’s future potential.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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