Block delivers a surprise profit, and its stock is surging

Block delivers a surprise profit, and its stock is surging

The parent company of Square and the Cash App gives an upbeat earnings forecast as it focuses on efficiency

Block Inc. has been focused on getting leaner, and that paid off for the Square parent company in the latest quarter as it posted a surprise profit.

Shares climbed more than 13% in Thursday’s extended session as Block also delivered an upbeat bottom-line forecast.

The company on Thursday recorded fourth-quarter net income of $10 million, or 2 cents a share, whereas it posted a loss of $541 million, or 93 cents a share, in the year-earlier period. Analysts tracked by FactSet had been expecting a 1 cent loss per share.

On an adjusted basis, Block SQ, +5.41% earned 45 cents a share, below the FactSet consensus, which was for 58 cents a share. But Block also reported $562 million in adjusted earnings before interest, taxes and depreciation (Ebitda), above the $448 million consensus view.

“Driving that is continued growth in the business at scale,” Chief Financial Officer Amrita Ahuja told MarketWatch. The company is seeing “consistent growth” across both its Square and Cash App ecosystems, while working to make the business more efficient, including through job cuts that have brought the company’s headcount below 12,000.

The constraints have been “clarifying for us,” Ahuja said, as Block refocuses its strategy for both sides of the business. Last quarter, it outlined to investors the strategy for its Square seller business, which included a push to be more localized with its go-to-market approach and better embrace artificial intelligence.

This time around, the company focused its shareholder letter on the Cash App, outlining, for one, a goal to get more customers on board with banking services.

“We believe we have an opportunity to drive and create primary banking relationships with these customers,” Ahuja said. The company’s Cash App debit card can be a “gateway” that prompts users to try other banking services from the company, and Block has introduced the card earlier in the onboarding process for new users.

The “holy grail” for many financial services company is to receive consumers’ direct deposits. That’s a priority for Block as well.

The company sees “a meaningful step up in value and engagement as customers choose to deposit their paycheck with us: Cash App Card actives who deposit at least $2,000 of paychecks per month spend nearly 6x more than Cash App Card actives who do not deposit a paycheck with Cash App,” according to the shareholder letter.

“We think our direct deposit offering is differentiated with no fees or minimums, early direct-deposit availability and the benefit of our active money being in the broader Cash App ecosystem where they can send, spend on Cash App Card or Cash App Pay, invest it, etc.,” Ahuja added on Block’s earnings call.

While the Square seller business has long focused on moving further “upmarket” — or toward larger merchants — that term came up in Block’s Cash App discussion as well.

The company is working on “moving more upmarket with families, which we’ve seen some early positive signs from,” said Jack Dorsey, who heads the company and goes by the title Block Head.

Overall, the Cash App had 56 million monthly transacting active users in the month of December, up 9% from a year before. Total inflows for the fourth quarter were $63 billion, up 18% from a year prior and up 2% sequentially.

The Cash App logged gross profit of $1.18 billion, up 25% from a year earlier. Analysts focus on gross profit rather than revenue for Block’s business since the company generates a lot of bitcoin BTCUSD, -1.18% revenue that carries little margin and thus obscures growth trends elsewhere.

The Square seller business recorded fourth-quarter gross profit of $828 million, up 18%.

Overall gross profit was $2.03 billion, up 22% and slightly ahead of the FactSet consensus, which was for $1.97 billion. Revenue was $5.77 billion, while analysts were looking for $5.70 billion.

Looking at the first quarter, Block models $2.00 billion to $2.02 billion in gross profit, while analysts were projecting $2.01 billion. The company is also looking for $570 million to $590 million in adjusted Ebitda, ahead of the $520 million consensus view.

For the full year, the company’s “initial” guidance calls for at least $8.65 billion in gross profit and at least $2.63 billion in adjusted Ebitda. Analysts were looking for $8.75 billion and $2.40 billion, respectively.

“This outlook does not assume any additional macroeconomic deterioration, which could impact results,” Block said in the shareholder letter.

error: Content is protected !!