Block released its first-quarter earnings report after the markets closed on Thursday, surpassing analysts’ expectations. The company’s stock surged more than 7% in after-hours trading.
Here’s a breakdown of how Block performed compared to what analysts predicted:
- Earnings per share: Block reported 85 cents adjusted, beating the expected 72 cents.
- Revenue: The company generated $5.96 billion, exceeding the anticipated $5.82 billion.
Block, previously known as Square, saw its gross profit reach $2.09 billion, marking a 22% increase from the previous year. Analysts often focus on gross profit to gauge the company’s core transactional businesses more accurately.
The company’s net income stood at $472 million, or 74 cents per share, which is more than four times higher than the $98.3 million, or 16 cents per share, reported a year ago.
Block raised its adjusted EBITDA forecast for the second quarter to $690 million from $670 million.
The Cash App business, Block’s popular mobile payment platform, reported $1.26 billion in gross profit, reflecting a 25% year-over-year growth. The company, led by Twitter co-founder Jack Dorsey, noted that its Cash App Card monthly active users grew to 24 million in March.
By the end of March, Block had 57 million monthly transacting actives for Cash App, up 6% from the previous year. The inflows per transacting active reached $1,255, marking an 11% year-over-year increase.
Block has been focusing on integrating Afterpay, the buy now, pay later company it acquired for $29 billion in 2021. Despite initial struggles, Block has been streamlining its operations. In recent months, it underwent layoffs, with Dorsey mentioning in a note to staff in January that many workers were let go.
During a call with CNBC, Chief Financial Officer Amrita Ahuja stated that the company is revising its outlook for the year to reflect its strong performance in the first quarter.
Dorsey directly addressed the company’s involvement with Bitcoin, noting that less than 3% of its resources are dedicated to Bitcoin-related projects. He emphasized the importance of Bitcoin in creating an open protocol for money, not controlled by any single entity.
Block plans to invest 10% of its gross profit from Bitcoin products into purchasing Bitcoin for investment. Dorsey highlighted that the $220 million the company invested in Bitcoin has grown 160% to $573 million as of the end of the first quarter.
Facing Scrutiny: Block’s Compliance Practices Under Federal Investigation
Cash App remains a big earner for Block, driving a significant portion of the company’s profits.
According to Ahuja speaking to CNBC, the fintech firm has seen consistent spending from its users, not just growth in the number of active users but also in how much they spend each month compared to last year and last quarter.
“This indicates that our customers are sticking with us and using our product frequently,” Ahuja remarked.
Block’s shares fell 8% on Wednesday following an NBC investigation suggesting that U.S. prosecutors are looking into the company’s compliance practices. This information reportedly came from a former employee of Block.
The NBC story claimed that many transactions, including credit card transactions, dollar transfers, and bitcoin transactions, were not reported to the government as required. The whistleblower allegedly provided evidence to the government showing violations of identity verification and anti-money-laundering rules, with indications that management overlooked these issues.
Unlike previous reports, these latest allegations involve both Cash App and Block’s Square point-of-sale technology. They also extend to international payments, dealings with sanctioned nations, and alleged breaches of the Office of Foreign Assets Control. Last September, Alyssa Henry stepped down as CEO of Square. Jack Dorsey took over the role, and no new CEO has been named.
In February, another NBC report revealed that two whistleblowers had gone to the U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN, with similar allegations. They claimed that Cash App lacked effective procedures for verifying customer identities.
Analysts at Macquarie noted on Wednesday that if the federal probe finds substance in these claims, the consequences could include fines or requirements for stronger oversight teams and infrastructure, rather than significant structural changes.
Last year, short-seller Hindenburg Research made similar accusations, suggesting that Block’s loose controls allowed criminal activity and that Cash App’s user base was exaggerated. Hindenburg criticized Block’s compliance systems as being too lax, describing them as a “Wild West” approach.
