Block stock gains after Cash App posts ‘standout’ results in Q1

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Block Inc. fell short of headline revenue and earnings expectations for its latest quarter, but shares of the payment-technology company formerly known as Square rose in after-hours trading Thursday after the company gave upbeat signals about its Cash App business.

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When excluding contributions from Block’s newly closed acquisition of buy-now pay-later operator Afterpay, the company reported $578 million in gross profit for its Cash App mobile wallet, which several analysts said came in ahead of their estimates and signaled healthy trends.

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Block SQ,
-10.53%
pointed to several momentum drivers on Thursday’s earnings call, including growing interest in direct deposits to the Cash App and increased transaction activity. Chief Financial Officer Amrita Ahuja said that the March quarter was Block’s best for Cash App inflows, and the company sees opportunity to further build awareness of the direct-deposit function.

“Cash App was the standout of Q1,” Barclays analyst Ramsey El-Assal wrote, highlighting that monthly active users transacted an average of 21 times across the ecosystem during the month of March.

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The company estimates that the Cash App grew gross profit by 15% on a year-over-year basis in the month of April, excluding contributions from Afterpay.

Shares of Block gained 8.4% in after-hours trading Thursday after sinking 10.5% in the regular session.

The Cash App’s performance seemed to outweigh some misses on Block’s headline numbers. Overall revenue fell to $3.96 billion from $5.06 billion, reflecting a drop-off in bitcoin BTCUSD,
+0.08%
revenue as other categories saw sales grow. Analysts tracked by FactSet were modeling $4.14 billion in total revenue.

The company generated total gross profit of $1.29 billion, up from $964 million a year before, while the FactSet consensus was for $1.30 billion. Analysts pay close attention to Block’s gross profit as the company’s revenue line is often swayed by initiatives like bitcoin trading that bring in substantial revenue without much profit. (Bitcoin revenue was $1.73 billion in the latest quarter, while bitcoin costs totaled $1.69 billion.)

The company reported a first-quarter net loss of $204 million, or 38 cents a share, whereas it posted net income of $39 million, or 8 cents a share, in the year-earlier quarter. On an adjusted basis, Block SQ,
-10.53%
earned 18 cents a share, down from 41 cents a share a year earlier, while analysts tracked by FactSet were expecting 20 cents a share.

Block’s overall gross payment volume jumped to $43.5 billion from $33.1 billion a year earlier, whereas analysts had been modeling $45.3 billion.

“We believe investors will shrug off the miss on GPV given reads from third-party data signaling a miss ahead of the print,” wrote Wolfe Research analyst Darrin Peller.

In response to a question about the impact of inflation on Block’s business, Ahuja told reporters following the results that the company had seen “strong” recent performance, including through April, with “growth across both discretionary and nondiscretionary areas of spend for each of the Square and Cash App platforms.”

“What we’ve seen in times of rapid macro changes,” such as earlier in the pandemic, is “that our platform is resilient,” she continued.

Block generated $1.23 billion in transaction-based revenue in the latest quarter, up from $959.7 million a year before. Subscription and services revenue increased to $959.6 million from $557.7 million, while hardware revenue rose to $37.3 million from $28.8 million.

The company launched free tax-filing services in January, and Ahuja shared that more than 1.5 million people opted to file their taxes that way, helping to drive inflows to the Cash App as filers could get their refunds direct-deposited to the platform. Three quarter of those who used Cash App Taxes and had Cash Card accounts opted to get their refunds sent to the app.

“We found these filers were more engaged with the broader ecosystem,” she said on the media call.

Square changed its corporate name to Block late last year in a move that it said would reflect the broader company’s growing focus on areas beyond payment-processing for merchants. The seller business retained the Square name.

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Credit: www.marketwatch.com /

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