Block investors need more to gauge crypto unit’s earnings potential, analysts say

By Niket Nishant

(Reuters) – Jack Dorsey-led payments technology firm Block could become a formidable player in the crypto mining industry, but Wall Street will need details on profit margins to gauge the earnings tailwind from this business, analysts said.

Block inked its first large-scale crypto mining hardware pact on Wednesday, agreeing to supply its chips to bitcoin miner Core Scientific, but no financial details were disclosed.

J.P. Morgan estimates the deal could fetch $225 million to $300 million for Block, but said it will need more information to evaluate the hardware business’s long-term earnings potential.

“We have more to learn in terms of margins of this business, so we are hesitant to underwrite this until we learn more around 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 itself in 2021 in a nod to its focus on crypto and blockchain technologies.

Dorsey, who co-founded and led Twitter (now known as ‘X’), has long been bullish on bitcoin. Block started investing 10% of its monthly gross profit from bitcoin products into bitcoin in April.

Almost 9% of the company’s cash, cash equivalents and marketable securities were held in the form of bitcoin in the first quarter.

“This development (the Core Scientific deal) is further evidence of Block as an emerging leader in the crypto hardware ecosystem,” Macquarie analysts Paul Golding and Emma Liang wrote in a note.

Subsequent similar deals could further validate Block’s reputation in the industry, according to the analysts.

But J.P. Morgan said the stock performance will be determined by Block’s other segments, such as Square and Cash App.

Block’s shares have lost nearly 17% so far this year.