Block’s stock soared 19% on Friday, following the payments company’s announcement of fourth-quarter earnings that exceeded analyst predictions for gross profit and showcased robust growth in its Square and Cash App revenue.
Here’s a breakdown of the company’s performance compared to analyst expectations from LSEG, formerly Refinitiv:
– Earnings per share: 45 cents, adjusted. Not directly comparable to estimates.
– Revenue: $5.77 billion vs. an expected $5.70 billion.
– Block reported $2.03 billion in gross profit, marking a 22% increase from the previous year. Analysts typically prioritize gross profit as a more precise gauge of the company’s fundamental transactional operations.
The company revised its adjusted EBITDA forecast to a minimum of $2.63 billion, up from $2.40 billion. Block, formerly Square, closed the year with 56 million monthly transacting actives for Cash App in December, with the majority utilizing it for peer-to-peer payments or the Cash App Card. Its Cash App division generated $1.18 billion in gross profit, reflecting a 25% year-over-year surge.
Under the leadership of Jack Dorsey, the company stated that its Cash App Card boasted 23 million monthly activities in December, a 20% increase. This growth rate surpassed that of total monthly activities by more than double.
“We believe this strategy will enable us to build the largest network in the long run, with a highly engaged customer base using Cash App as their primary banking solution,” Dorsey conveyed in a message to shareholders.
In recent months, the payments firm has concentrated on streamlining operations. In January, the Block CEO reportedly informed employees in a note that a “large number” of workers had been laid off. This followed a previous round of layoffs in December.
Dorsey mentioned in his shareholder note that the company was now below a previously established cap of 12,000 employees. “We’re going to operate under this cap until we feel it’s holding us back, which is likely years out,” Dorsey wrote. The company recorded a $70 million charge for severance costs.
Additionally, the company registered a $132 million impairment on its investment in music streaming service Tidal. Block and Dorsey have had a mixed record in dealmaking. In 2019, the company sold delivery service Caviar to DoorDash for $410 million in cash and stock. It also acquired Afterpay in 2021 for $29 billion, its largest acquisition to date.
Since the announcement of the Afterpay deal, Afterpay has faced challenges, posting consecutive quarterly losses throughout 2022. Dorsey stated in his shareholder note that integrating Afterpay more closely into Cash App and utilizing it to enhance Cash App’s buy-now, pay-later technology were two key focuses for 2024.
Block’s strong quarterly performance and outlook for the full year prompted Wall Street analysts to upgrade their assessment of the stock on Friday. Wells Fargo elevated Block to overweight and raised its price target from $65 to $95, while Seaport Research Partners upgraded the stock to a buy and increased its price target to $95.
“SQ’s progress over the past several months in terms of streamlining itself organizationally, sharpening its focus within its two key businesses Square and Cash App, and becoming hyper-focused on driving profitable growth has been impressive,” the Seaport Research Partners analysts wrote. “We think there’s more to go.”
