Block's stock soars as company sets big earnings goal, launches buyback program

By Emily Bary

'Really what we expect to see next year is meaningful margin expansion,' CFO says

Block Inc. set a big target for a 2024 earnings metric that vastly exceeded the consensus view, helping to send its stock shooting 16% higher in Thursday's extended session.

The Square parent company also announced that its board has authorized the repurchase of up to $1 billion in shares, which will partly offset dilution from stock-based compensation.

Block offered an upside preliminary outlook for 2024 adjusted earnings before interest, taxes, depreciation and amortization, projecting $2.4 billion. Analysts, meanwhile, were expecting $1.94 billion.

"Really, what we expect to see next year is meaningful margin expansion as we make progress to 'Rule of 40,'" Chief Financial Officer Amrita Ahura told MarketWatch, referring to the sum of gross-profit growth and adjusted-operating-income margin. Block expects to hit that target in 2026 but make strides during the next calendar year.

The company generated a third-quarter net loss of $29.0 million, or 5 cents a share, compared with a loss of $14.7 million, or 2 cents a share, in the year-earlier period.

On an adjusted basis, Block (SQ) earned 55 cents a share, up from 47 cents a share a year before, whereas analysts surveyed by FactSet were looking for 47 cents a share, on average.

Revenue increased to $5.6 billion from $4.5 billion and came in ahead of the FactSet consensus, which was for $5.4 billion.

With Block, analysts look to gross profit as a better indicator of top-line growth, as the traditional revenue line is heavily swayed by bitcoin revenue, which carries minimal margin. Block's gross profit came in at $1.90 billion, up from $1.57 billion and roughly in line with the FactSet consensus.

See also: PayPal's new CEO is speaking Wall Street's language, and the stock is rocketing

The company saw $899 million in gross profit for its Square seller business, up 15% from a year before. Cash App gross profit increased 27% to $984 million.

The Cash App mobile-wallet saw growth on its major metrics during the quarter. In the month of September, the company had 55 million monthly transacting active users, up 11% from a year before. Inflows per transacting active user during the third quarter were $1,132, up 8%.

Chief Executive Jack Dorsey recently took over leadership of the Square seller business, and he outlined his new priorities for the segment, which include a more localized product focus, better use of artificial intelligence and a greater push with the company's banking products.

"Restaurants are inherently local," Ahuja told MarketWatch, and Block expects to better reach upmarket businesses, especially in the food and beverage sector, with a more localized go-to-market approach.

Square also now allows sellers to use AI for things like menu generation. The company also sees ways to better incorporate AI into its own engineering processes to drive greater efficiencies.

For the fourth quarter, Block models $1.96 billion to $1.98 billion in gross profit, while analysts were looking for $1.98 billion. The company anticipates $430 million to $450 million in adjusted Ebitda, while the FactSet consensus was for $393 million.

See also: PayPal and Block shares are 'battlegrounds.' Here's why that's unlikely to change.

Ahuja highlighted various areas where Block plans to seek out greater operating-expense discipline. She expects that Block will cap the size of the company at 12,000 employees, below where it is currently, by the end of 2024. The company will achieve that through "a range of approaches," including a stronger performance manager, a stricter product roadmap and some restructuring of teams.

"Some teams may grow and some may get smaller," she said.

Additionally, Block will be more mindful of its corporate overhead through means like assessing its real-estate footprint, and the company will look to improve its broader variable cost structure.

-Emily Bary

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11-02-23 2004ET

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