Jack is Whack(y): On Investing in Block

Block is a great company. Multiple great businesses all tied together with plenty of future growth possibilities.

Jack is tough to discuss. People see whatever they want to. Bears see a crazy CEO who doesn’t care about maximizing shareholder value. Bulls see an eccentric CEO whose founded multiple billion dollar companies. What’s the truth? As in most situations, it lies in the middle. Let’s dive in.

Whack or Wacky?

A CEO not maximizing shareholder capital can be incredibly dangerous for investors. If they aren’t maximizing shareholder value, what are they maximizing? I think the concerns around Jack here stem from four different parts of Jack’s history.

First – as CEO of Twitter he publicly commented that he believed Twitter should be a protocol, not a company. Jack has always had an odd relationship with Twitter (founded the company, stepped down, came back, stepped down again). Nothing in his history as CEO of Twitter shows that he acted against shareholders. To me, this is more Jack being weird (different) and not a serious red flag as an investor. If Jack were acting on these thoughts, his actions as CEO would have been radically different.

Second – Jack’s love of Bitcoin. He considers it the most important place for him to work. I think this is an area where you need to track what Jack’s actions are. So far, I think Bitcoin has been a net positive for Block, allowing significant growth. At this point, Block has yet to deploy extensive resources here, with the bet on Bitcoin relatively small. Recent developments into hardware wallets, etc… could change that, but for now I think the Bitcoin bet has been a. small, b. net positive.

“I don’t think there’s anything more important in my lifetime to work on, and I don’t think there’s anything more enabling for people around the world.”

Jack Dorsey on Bitcoin

Third – Jack was highly involved in the Twitter train wreck. As the Twitter files have shown, Twitter is a bit of a mess. This isn’t a new development. Block has largely avoided this mess, but it is something I’ll be watching closely.

Fourth – capital allocation concerns. We have a track record of failed acquisitions for both Block and Twitter, yet the acquisitions keep coming for Block. From a meh start to a major Afterpay acquisition to Tidal, Block has made a number of major acquisitions with limited results. I’m a little torn on this because it does show the ambition to grow Block into something much more than it is, yet the results are meh at best. To me, this is the biggest worry.

I get why these quotes/capital allocation from Jack could scare investors. Jack has his messes. Jack is complicated. He’s not a war time CEO. He’s a builder. He loves optionality (one of the reasons I’m a fan). To me, he’s more wacky than whack. I completely understand anyone deciding not to take this risk, because Jack is a risk. The question is always, is the risk worth the reward? I think the risk is worth it, but Jack is a risk and I will limit my cost basis. The reality is Jack has founded and scaled two multi-billion dollar companies. If Jack didn’t have a rich history, I wouldn’t be investing in Block. I chose to trust people’s actions more than their words.