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Block stock pops as Square parent notches large earnings beat

By Emily Bary

Company raises full-year forecast on a profit metric

Block Inc. posted a big beat on an adjusted earnings metric for its most recent quarter as it "significantly" slowed its rate of hiring and showed more discipline around marketing spending.

Shares of the payment-technology company, which houses the Square, Cash App and Afterpay brands, were up more than 4% in after-hours trading Thursday after Block (SQ) also raised its full-year earnings outlook.

The company logged a first-quarter net loss of $17 million, or 3 cents a share, compared with a loss of $204 million, or 38 cents a share, in the year-before quarter. On an adjusted basis, Block earned 40 cents a share, up from 18 cents a share a year before, while analysts tracked by FactSet were modeling 35 cents a share.

Block also reported adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of $368 million, considerably ahead of the $268 million that analysts were expecting.

The company has "been very choiceful in deploying marketing spend across the business while still seeing strong returns on investments," Chief Financial Officer Amrita Ahuja told MarketWatch. The company also "significantly slowed" the pace of its hiring.

While Block didn't end up spending as much on its operating-expense base in the first quarter and expects to see some of that materialize later in the year, it upped its full-year adjusted Ebitda forecast to $1.36 billion from $1.30 billion. Executives also expect a full-year adjusted operating loss of $115 million, versus a prior forecast for $150 million.

Revenue for the first quarter rose to $4.99 billion from $3.96 billion a year before, whereas analysts expected $4.60 million.

Gross profit at Block rose to $1.71 billion from $1.30 billion, while analysts were modeling $1.65 billion. Block executives view gross profit as a better gauge of top-line performance than the revenue figure, which contains large contributions from areas like bitcoin trading that carry very small margins.

Block posted $931 million in Cash App gross profit, with Ahuja calling out strong growth in the company's financial-services offerings. The company had 20 million Cash App Card monthly active users in March, up 34% from a year before. From January to April, more than 3 million customers added funds to their Cash App-linked savings accounts.

Within the Cash App, the company is seeing "a lot of spend across discretionary and non discretionary" categories, which "really is an indicator of broad-based spend for our customer," Ahuja said.

She added that the Cash App, Block's mobile wallet, is seeing "healthy" inflow trends, with inflows per transacting user up 8% sequentially to $1,136.

The growth comes even as Block is getting more of its mix for this business from younger customers, who may not be as affluent as older ones.

The Square seller business generated $770 million in gross profit, helped by momentum in software products, larger sellers and international growth.

The company saw its international markets make up 16% of total company gross profit, and Ahuja sees a "long runway for growth" as she estimates the company is less than 1% penetrated in the international markets where it operates.

Block acquired the Afterpay buy-now-pay-later business in early 2022 and has been working to link that more to its various business units. The linkages are still in their "early days," according to Ahuja, but she sees ample opportunity to bring BNPL, ads, and affiliate offerings to the Cash App.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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05-04-23 1628ET

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