Blocked stock gains after Cash App posted stellar Q1 results

Block Inc. fell short of revenue and earnings expectations for the most recent quarter, but shares of the payments technology company formerly known as Square rose in after-hours trading on Thursday after the company gave bullish signals about its cash app business .

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

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During Thursday’s conference call, pointed to several drivers, including growing interest in direct deposits into 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 an opportunity to further increase awareness of the direct deposit feature.

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

The company estimates that Cash App increased gross profit by 15% year over year for the month of April, excluding contributions from Afterpay.

Block’s shares gained 8.4% in after-hours trading Thursday after falling 10.5% in the regular session.

Cash App performance seemed to make up for some misses on Block’s headlines. Total sales fell to $3.96 billion from $5.06 billion, reflecting a decline in Bitcoin BTCUSD.
Sales as other categories saw increases in sales. Analysts tracked by FactSet modeled total revenue at $4.14 billion.

The company reported total gross income of $1.29 billion, up from $964 million last year, while the FactSet consensus was $1.30 billion. Analysts pay close attention to Block’s gross profit as the company’s revenue line is often impacted by initiatives like bitcoin trading that bring in significant revenue without a huge profit. (Bitcoin sales were $1.73 billion last quarter, while total bitcoin costs were $1.69 billion.)

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

Block’s total gross payment volume rose to $43.5 billion from $33.1 billion last year, compared to $45.3 billion expected by analysts.

“We think investors will shrug off the lack of GPV as readings from third-party data signal a miss before print,” wrote Darrin Peller, an analyst at Wolfe Research.

Responding to a question about the impact of inflation on Block’s business, Ahuja told reporters after the results that the company had had a “strong” performance recently, including through April, with “growth in both discretionary and non-discretionary terms.” discretionary spending areas for each of the Square and Cash App platforms.”

“What we’ve seen in times of rapid macroeconomic change,” like earlier in the pandemic, “is that our platform is resilient,” she continued.

Block generated $1.23 billion in transaction-based revenue last quarter, up from $959.7 million a year earlier. Subscriptions and services revenue increased to $959.6 million from $557.7 million, while hardware revenue increased to $37.3 million from $28.8 million.

The company launched free tax filing services in January, and Ahuja said more than 1.5 million people have chosen to file their taxes this way, which has helped boost inflows into Cash App as taxpayers could transfer their refunds directly to the platform. Three-quarters of those who used Cash App Taxes and had Cash Card accounts chose to send their refunds to the app.

“We found that these filers are more connected to the broader ecosystem,” she said at the media call.

Square changed its company name to Block late last year to reflect the broader company’s growing focus on areas beyond merchant payment processing. The vendor store retained the Square name. Blocked stock gains after Cash App posted stellar Q1 results

Brian Lowry

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