Workflow
Will Toast Stock Ever Be Worth More Than Block?
SQBLOCK(SQ) The Motley Fool·2025-02-28 08:12

Group 1: Block Overview - Block, formerly known as Square, revolutionized mobile payments with its credit card reader in 2009, allowing businesses to accept digital payments easily [1] - The company's current valuation exceeds 40billion,butthereareconcernsaboutitsfuturegrowthtrajectory[2]−Block′slong−termvisionappearsunclear,withdiversificationintoareaslikemusic(Tidal)andBitcoin−relatedservices,raisingquestionsaboutitscorefocus[3]Group2:FinancialPerformance−In2024,Blockreportedagrossprofitof40 billion, but there are concerns about its future growth trajectory [2] - Block's long-term vision appears unclear, with diversification into areas like music (Tidal) and Bitcoin-related services, raising questions about its core focus [3] Group 2: Financial Performance - In 2024, Block reported a gross profit of 8.9 billion, reflecting an 18% year-over-year increase, and an operating income of 892million,indicatingprofitability[4]−Thecompanyisshiftingitsbusinessmodel,focusingonsoftwareforsmallbusinessesandexpandinglendingandcreditservicesforconsumers[5]Group3:CompetitiveLandscape−Blockfacessignificantcompetitioninthesoftwarespace,particularlyifittargetslargerbusinesscustomers,whilesmallerbusinessesmayofferlesslucrativeopportunities[6]−Thecompany′spivottowardslendingservicesamidhighinflationraisesconcernsaboutitsviability[6]Group4:ToastOverview−Toastservestherestaurantmarket,whichalignswithBlock′snewfocusonneighborhoodbusinesses,andhasanefficientcustomeracquisitionstrategy[8]−In2024,Toastaddedarecord28,000newrestaurantlocations,bringingthetotalto134,000,resultingina28892 million, indicating profitability [4] - The company is shifting its business model, focusing on software for small businesses and expanding lending and credit services for consumers [5] Group 3: Competitive Landscape - Block faces significant competition in the software space, particularly if it targets larger business customers, while smaller businesses may offer less lucrative opportunities [6] - The company's pivot towards lending services amid high inflation raises concerns about its viability [6] Group 4: Toast Overview - Toast serves the restaurant market, which aligns with Block's new focus on neighborhood businesses, and has an efficient customer acquisition strategy [8] - In 2024, Toast added a record 28,000 new restaurant locations, bringing the total to 134,000, resulting in a 28% increase in full-year revenue [9] Group 5: Toast's Financial Efficiency - Toast's sales and marketing expenses were less than 10% of its revenue, with a 17% increase in these expenses in 2024, indicating effective spending [10] - The company benefits from a flywheel effect, where existing customers help attract new ones, reducing marketing costs over time [11] Group 6: Profitability and Growth Potential - Toast's net income improved to 19 million in 2024 from a net loss of $246 million in 2023, indicating increasing profitability as it scales [12] - Management anticipates double-digit growth in 2025, and if this trend continues, Toast could potentially double its value in five years, matching Block's current valuation [13]