Blocking shares decline after earnings, as Square’s parent company swings at a loss

Shares of Block Inc. fell 7% in after-hour trading Thursday after the payment technology company made a loss in an earnings report that appeared to cause some controversy over whether the company actually outperformed or missed. expectations on several key parameters.

SQ block,
+ 1.85%,
which recently changed its corporate name from Square, posted a net loss of $ 208.0 million, or 36 cents per share, while it posted a net profit of $ 204.0 million, or 40 cents per share, for the period of the previous year. On an adjusted basis, Block earned 18 cents per share, down from 49 cents per share the previous quarter, while analysts had modeled 16 cents per share.

Block’s revenue fell to $ 4.40 billion from $ 4.68 billion, reflecting a sharp drop in bitcoin BTCUSD,
+ 2.39%
contributions in the last quarter. Bitcoin’s revenue fell 34% to $ 1.79 billion in the second quarter.

Read: These companies jumped on the cryptocurrency train when times were booming. Which ones are exposed in a downward phase?

Analysts followed by FactSet were expecting $ 4.33 billion in total revenue for the quarter.

While bitcoin trading generates hefty revenue for Block, it comes with minimal profit, one of the reasons the firm’s executives and analysts covering the stock tend to view Block’s overall gross profit figures as a proxy for business. enter.

“Gross profit captures our take on those bitcoin sales, which is why we see the most consistent trends based on gross profit versus revenue,” Chief Financial Officer Amrita Adhuja told reporters in a call. to the media after the report.

Gross profit was $ 1.47 billion for the final quarter, up from $ 1.14 billion a year earlier, while analysts had forecast $ 1.48 billion. Excluding the buy now pay after contributions related to the company’s recent acquisition of Afterpay, Block’s gross profit was $ 1.32 billion.

Gross payment volume reached $ 52.5 billion, up from $ 42.8 billion a year earlier, but below the FactSet consensus, which was $ 53.2 billion.

Block generated $ 755 million in gross profit for its Square selling business, above the consensus of FactSet, which required $ 735 million. Excluding BNPL, the segment’s gross profit was $ 681 million.

While the GPV for the company’s Square business grew 25% year-over-year in the second quarter, the company expects an 18% growth on metrics for the month of July.

The company’s Cash App business posted a gross profit of $ 705 million, up from $ 546 million a year earlier. Analysts followed by FactSet were modeling $ 678 million. Cash App’s gross profit for the last quarter was $ 630 million excluding BNPL impacts.

While Block appeared to exceed FactSet’s consensus expectations with its Cash App and Square gross earnings figures, analysts appeared to have divergent views on whether the company actually exceeded expectations or failed to meet them. This likely has to do with whether or not BNPL impacts are included in the consensus figures and whether analysts as a whole are consistent on whether or not to include BNPL in their estimates, two factors that are not immediately clear in the consensus figures. look at the FactSet numbers.

The “second consecutive quarter lacking in gross profits (CashApp and Square / merchants) and GPV probably reflects the consumer / trader profile of SQ’s end market, which is struggling during the current high inflation environment,” the analyst wrote. by Wedbush Moshe Katri in an email. “We also believe this will continue to fuel investor concerns about SQ’s competitive position vis-à-vis the likes of Fiserv’s FISV.
-1.40%
Clover as well as ADYEN of Adyen,
+ 0.86%
ongoing efforts to expand into US SMEs [small- and medium-business] space.”

RBC Capital Markets analyst Daniel Perlin, meanwhile, indicated that Block exceeded his expectations for Square’s business but fell short of the Cash app. And Jefferies analyst Trevor Williams said Block beat the Street on the Cash app but came out shy with the Square business, ruling out the Afterpay impacts and salary protection program impacts on the seller’s business.

The executives offered in the letter to the company’s shareholders to predict that Cash App’s gross profit would grow year-on-year in July, “driven by the growth in monthly active transactions, involvement in our ecosystem and Cash App inflows.”

Ahuja told reporters that Block continues to “see strong growth here, particularly in the scale of the ecosystem and the total amount of inflows.”

“We saw a wide range of use cases on Cash App Card, with 33% spending on gas, utilities and travel, 30% on food and groceries, and 22% at big-box and discount retailers. “he said at the company’s earnings call.

See also: Cash app users can now invest in stocks and bitcoins with their change

Mizuho analyst Dan Dolev called the results “a bit disappointing”, adding that “Block fans who are used to beating and raising well in previous years will likely be disappointed, hence the negative reaction from the shares.”

Block’s shares have lost about two-thirds of their value over the past 12 months, as the S&P 500 SPX,
-0.08%
it fell by about 6%.

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