Block's Square Partner Expansion Reinforces Ecosystem Strategy Amid Persistent Valuation and Risk Overhangs

What happened

Block announced an expansion of Square's partner ecosystem in 2026, adding major partners like Amazon and Apple to provide connected tools for sellers, aiming to accelerate growth. This move aligns with the DeepValue report's emphasis on Block's real ecosystem advantages, such as integrated software and financial services that support its transition to profitable growth. However, the report critically notes that Block's stock trades at approximately $65, nearly double a conservative DCF estimate of $33, indicating limited margin-of-safety for value-oriented investors. Significant structural risks remain elevated, including non-investment-grade credit, rising on-balance-sheet lending exposure, regulatory scrutiny over BNPL and crypto, and bitcoin volatility. Thus, while the partnership expansion is operationally positive, it does not address the core valuation and risk issues that underpin the report's 'WAIT' recommendation.

Implication

Investors should interpret the ecosystem expansion as a step toward enhancing Square's competitiveness and seller retention, potentially driving long-term growth. However, this development fails to alter the valuation disconnect, where the stock trades at a ~97% premium to conservative intrinsic value, limiting downside protection. Regulatory overhangs, such as SDNY probes and BNPL scrutiny, persist and could impair profitability if adverse outcomes materialize. Credit risk from increased lending activities requires vigilant monitoring, especially in economic downturns, to assess potential reserve builds. Consequently, maintaining a patient stance is prudent, with focus on watch items like regulatory resolutions, credit metrics, and valuation adjustments before considering a buy.

Thesis delta

The expansion of Square's partner ecosystem confirms Block's continued focus on ecosystem strengthening, consistent with the existing thesis of disciplined, profitable growth. However, it does not shift the investment thesis, as core concerns around overvaluation, regulatory risks, and credit exposure remain unaddressed, reinforcing the 'WAIT' stance until clearer margin-of-safety emerges.