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When you think of SQ stock, cryptocurrency Bitcoin quickly comes to mind. There's also a big acquisition to mull for Square stock as well as a corporate rebranding.

Amid rising fears of a U.S. recession, one question is how resistant Square-parent Block (SQ) will be to a business downturn versus other digital payment companies.

Meanwhile, Block stock has retreated about 60% in 2022.  SQ stock has underperformed when compared with the S&P 500, which is down nearly 18%. But Block stock popped on its third-quarter earnings report.

Block Stock: Tough Times For Crypto

In late 2021, Square changed its name to Block, while retaining the ticker SQ. In part, the move reflected the company's commitment to blockchain technology, which underpins cryptocurrency. SQ stock has dropped 69% since the rebranding.

Meanwhile, the price of Bitcoin stood near $17,140 on Dec. 11 after the FTX  bankruptcy. Crypto assets have been under pressure.

The price of Bitcoin has retreated 75% since peaking around $68,900 in November 2021. For investors in Square stock, a key question is when the price of Bitcoin will bottom. Another question is whether SQ stock can rebound even if Bitcoin and crypto continue to struggle.

Block has aimed to build infrastructure that enables bitcoin-based commerce on its merchant platform. In addition, Square created a new business line to help developers build financial services products focused on Bitcoin.

SQ Stock: Cash App Growth One Key

In its core business, Square stock aims to build a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers. The Square Cash App helps individuals manage money, buy stocks and cryptocurrency, and more.

Cash App user growth and monetization is key to the outlook for SQ stock. Cash App growth soared during the coronavirus pandemic amid government economic stimulus. The bearish view is that Cash App growth will slow as the U.S. economy normalizes.

At the Goldman Sachs conference in September, Square said the Cash App now has 47 million monthly active users, up slightly from 44 million at the end of 2021. Younger demographics are expected to remain the predominant source of Cash App user growth.

The company retains the Square brand for merchants that use its point-of-sale technology and services.

At an investor day in May, Chief Executive Jack Dorsey said Block has "an ecosystem of ecosystems" business model.

The strategy is designed to create a positive feedback loop among business units as the company expands, he said. But Square did not provide multi-year guidance on revenues and margins.

In addition, it's worth noting that Square stock uses a dual class structure of common stock, which gives insiders more voting power.

Square Stock: Move Into 'Buy Now, Pay Later'

Square on Jan. 31 closed the acquisition of Australia-based consumer lending startup Afterpay. Its growth has slowed. And, fintech companies that are "buy now, pay later," or BNPL, like Afterpay face increased regulation.

Announced Aug. 1, the Afterpay deal was originally valued at $29 billion. With the big drop in Block stock, the deal was valued at less than $15 billion at closing.

Afterpay competes in the emerging "buy now, pay later" market that encroaches on credit card networks. Apple (AAPL) has emerged as a rival to Afterpay. Another rival of Afterpay is Affirm Holdings (AFRM).

Some investors questioned whether Block needed to buy a company in this sector as opposed to building up its own capabilities or partnering. Competition is heating up in the buy now, pay later market.

Block's 2022 guidance includes an expected $1 billion in Afterpay operating expenses. UBS analyst Rayna Kumar in a report said the "risk profile" of Afterpay has changed amid rising interest rates and the potential of increased regulation.

Square stock surged in 2020 during the coronavirus outbreak as investors focused on the growth of its consumer Cash App. They shrugged off worries over Square stock exposure to small businesses and restaurants that might close because of the coronavirus pandemic.

Square acquired a majority stake in Jay-Z's Tidal music streaming service for $297 million in cash and stock.

Block Stock: Competition Heats Up

With multiple products, SQ stock faces stiff competition in both consumer financial apps and the small business market. Rivals include PayPal Holdings (PYPL), First Data's (FDC) Clover unit, Shopify (SHOP), merchant acquirers, and well-funded startup Stripe.

Square disclosed a new $170 million investment in Bitcoin in early 2021 on top of its $50 million purchase in October 2020. The company reports Bitcoin holdings as unrealized gains on investments, and they will be excluded from adjusted earnings, analysts say.

The company also is interested in developing a Bitcoin hardware wallet.

Cash App users are able to buy, hold and sell Bitcoin. Square's adjusted revenues from Bitcoin are sales to app users, minus the cost of purchasing the digital currency.

But Square's Bitcoin business has gross profit margins of only around 2%, analysts say.

Square Stock: Payments Ecosystem

For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers. While Square retains only 10% of Square Capital loans on its balance sheet, there's still a risk of defaults.

The Square Cash App, a peer-to-peer money-transfer service, competes with PayPal's Venmo, Zelle and others.

Amid the coronavirus pandemic, Cash App emerged as a digital alternative to traditional banks. Consumers used the Cash App's direct-deposit feature to receive government stimulus payments, for example.

Square is testing a short-term borrowing feature for Cash App users. Square offers loans of $20 to $200. Cash App users are expected to pay pack the loans in four weeks, with interest.

Also, the Cash App provides a stock trading feature. Cash App offers a debit card through a deal with Marqeta.

The bearish view is that Cash App's momentum proves transitory with low customer retention after the coronavirus pandemic eases.

Block Stock: Moving Upmarket To Bigger Sellers

With roots in serving such micromerchants as food trucks and farm-stand vendors, Square has moved "upmarket," targeting larger businesses.

SQ stock ranks among the top 10 fintech companies. Bigger fintech companies include Visa (V), Mastercard (MA), PayPal, Fidelity National Information Services (FIS), Fiserv (FISV) and American Express (AXP).

In addition to selling credit-card readers, Square provides software for point-of-sale and back offices in order to manage inventory and other tasks.

Square recently focused on software products that can be used across many industries, such as invoicing, payroll and marketing. It also aims to integrate its payment tools into e-commerce platforms.

SQ Stock Fundamental Analysis

Block reported September-quarter earnings and revenue that topped analyst estimates.

Square earnings came in at 42 cents per share on an adjusted basis, up 13% from the year-earlier period. Analysts had projected earnings of 23 cents a share.

Also, Square said net revenue rose 17% to $4.52 billion, including Cash App transactions for digital cryptocurrency Bitcoin. SQ stock analysts had predicted revenue of $4.49 billion.

Gross profit rose 38% to $1.57 billion vs. estimates of $1.53 billion. Block said Afterpay contributed $150 million in gross profit in the quarter.

Gross payment volume from merchant customers rose 20% to $54.4 billion, slightly below estimates of $55.222 billion.

The company said earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 40% to $327 million. Analysts had estimated $193 million.

Is Square Stock A Buy Or Sell Right Now?

Square's Relative Strength Rating is only 19 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an 80 or better RS Rating.

The relative strength line, the blue line in the chart above, compares a stock's price performance with that of the S&P 500. A downward-trending RS line tells you the stock is underperforming the general market.

Block stock holds an IBD Composite Rating of 51 out of a best possible 99.

SQ stock, meanwhile, has an Accumulation/Distribution Rating of B-plus. The rating runs from a best-possible A+ to a worst-possible E. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.

As of Dec. 12, SQ stock has no valid entry point. Square stock needs to form a new base to be actionable.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.

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