Tech
Block Investors Need More Information to Assess Crypto Unit’s Earnings Potential, Analysts Say
(Reuters) – Jack Dorsey’s payments technology company Block could become a formidable player in the cryptocurrency mining industry, but Wall Street will need details on profit margins to gauge the business’s positive impact on earnings, analysts said.
Block struck its first large-scale deal for cryptocurrency mining hardware on Wednesday, agreeing to supply its chips to bitcoin miner Core Scientific, but no financial details were disclosed.
JP Morgan estimates the deal could net Block between $225 million and $300 million, but said more information will be needed to assess the hardware business’s long-term earnings potential.
“We still have a lot to learn in terms of the margins of this business, so we are hesitant to underwrite this transaction until we know more about the cadence and economics,” J.P. Morgan said.
The deal marks a major step for the payments company, which started out as “Square” in 2009 before rebranding in 2021 in a nod to its focus on crypto and blockchain technologies.
Dorsey, who co-founded and ran Twitter (now known as “X”), has long been bullish on Bitcoin. Block began investing 10% of its monthly gross profit from Bitcoin products into Bitcoin in April.
In the first quarter, nearly 9% of the company’s cash, cash equivalents, and marketable securities consisted of bitcoin.
“This development (the deal with Core Scientific) is further evidence of Block’s role as an emerging leader in the crypto hardware ecosystem,” Macquarie analysts Paul Golding and Emma Liang wrote in a note.
Analysts say similar deals to follow could further validate Block’s reputation in the industry.
But J.P. Morgan said the stock’s performance will be determined by Block’s other segments, such as Square and Cash App.
Block shares have lost nearly 17% this year.
(Reporting by Niket Nishant in Bengaluru; editing by Shreya Biswas)