Inside XYZ: CashApp, Square & Bitcoin

**SPEAKER_1** (0:00)
Tony Zipparo is with me, CEO Equity Set. I'm glad you're with us. I saw at least some bright spots on the robust gross payment volume growth, their earnings beat. The stock has hit a 52-week high this week, though it's pulled back now down 5%.
Formally square, we use the ticker symbol XYZ for block. Some of your thoughts here, Tony, what do you make of it?

**Tony Zipparo** (0:25)
Yeah, absolutely, and thank you for having me.
Really, from what the report, there's three main revenue drivers that block has. It's basically buy now, pay later, which is CashApp. Obviously, it's payment processing volumes and Bitcoin. It beats both top and bottom line.
Gap earnings obviously looked a little weaker, but it appears that that's really just from some write-off, some legal structure things, things like that. So overall, I'd say the earnings are very good. Their profitability on CashApp and those loans increased quite a bit. So that's really the growth driver you want to watch. That's where I think that's where the risk is. Right now, it's performing well. But one interesting thing is whether Block is being conservative or they see trouble ahead, in that buy now, pay later space, their loan provisioning went from about 10 percent loss write-offs to somewhere near 15 percent. So I think that's interesting of do they see weakness in the consumer ahead, not being able to pay those, or are they just being a little bit ultra conservative in not wanting to obviously take write-offs that they didn't account for? So overall, I think great earnings, like you said, trading near a hit of 52 week high, and I think that's exactly where resistance is. If we can get right now almost down 6 percent, if we can close strong in the next week or so above the 85, 86 price level on good volume, I think it has room to run. It's looking like it kind of want to give up a little, and maybe go back down right into the 70s or 60s and catch support.

**SPEAKER_1** (2:10)
Then it would be a buying opportunity there because you said it looks like it has room to run, but you do like it if it were to dip, is that right?

**Tony Zipparo** (2:19)
Absolutely. I think a lot of whether it's what your outlook on the individual consumer that is more price-sensitive and savings-sensitive spaces. I do like it compared to competitors, like a firm that have a lot more exposure in that space, because obviously the payment processing side of a block, again, holds its own. It's a great profit driver.
Its margins are about 13 percent. The CashApp margin is about 31 percent. So it's not going to grow a lot if you have a fall off in that consumer, and less loans or less ability to pay back those loans. But I think if you get it around, again, a low 20 PE if it does fall, it's at least a steady hold and not as big of a risk of falling off a cliff in terms of valuation.

**SPEAKER_1** (3:10)
I think of the CashApp. I mean, the CashApp was the story for this company years ago. In fact, Dan Dolove used to come on three years over that, saying the CashApp was certainly a bright spot for the company, and it caused some volatility. But we are seeing that being yet another great move and engine for the company.
Then it leads me to the question that I saw written too, just said, is this square a turnaround or a growth story? I'm not sure the headline even matters, but there are a lot of things that are in fact growing. The other part of the story is the pivot toward AI. We didn't have that story three years ago.

**Tony Zipparo** (3:52)
Yeah. It's interesting looking back at a five-year chart, you forget that it was at the 300 level, and then it came down violently because of all those pivot points where they went as a company. I think valuation fundamentally growth-wise, it is a solid play. I think the market perception on that is what's going to maybe keep it in check and undervalue it a little bit going forward. Although again, it has, like you mentioned, hit 52-week highs, so we've seen a little bit of a turnaround. The other aspect that's putting downward pressure that may relieve itself soon is, basically one of their directors, Anthony Eisen, has been selling quite a bit of shares right over the last year or so. Again, it's considerable, I think, almost 600,000 shares, again, putting and selling on the marketplace.
That's not good for overall price appreciation. You want the buying behind it.