Block shares tumbled on Friday despite the payments solution provider posting better-than-expected second quarter financial results that topped Wall Street estimates.
For 2Q, Block posted year-over-year revenue growth of 26% to $5.53 billion of which Bitcoin revenue was $2.39 billion.
Block’s profit grew 27% year-over-year from $1.47 billion to $1.87 billion, of which Square’s profit was $888 million, up 18%, while Cash App generated $968 million, a 37% jump from the year-ago quarter.
The company narrowed its net loss from the same period last year of $208 million to $123 million, or adjusted earnings per share (EPS) of $0.39, up $0.21 from the year-ago quarter.
Block beat Street expectations on both the top and bottom line, which were for EPS of $0.35 on revenue of $5.2 billion, per Zacks Consensus Estimate.
Following the company’s “better-than-expected” results, analysts at Wedbush reiterated their ‘Neutral’ rating on the stock while raising their calendar year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance on its recent cost efficiency initiatives.
“Digging deeper into the metrics, the company's gross payment volume (GPV) was light, while gross profit growth from subscription and services moderated from the prior quarter,” they wrote in a note to clients.
“Furthermore, July's monthly update suggested a meaningful slowdown in gross profit growth (from 27% during the quarter to 21%).”
They also highlighted management’s expectation that CashApp’s growth would moderate in the fourth quarter of the 2023 calendar year due to unfavorable year-over-year comparisons.
“Management expects continued discipline in operating expenses, highlighted three main areas for operating expense leverage: sales and marketing, hiring and headcount, and corporate overhead,” the analysts also noted.
The analysts also pointed out that Block’s verticalization efforts in sales and marketing had improved gross profit and software attachment rates for upmarket sellers.
Its international markets showed strong growth, with 35% year-over-year gross profit growth for Square, excluding its buy now, pay later (BNPL) platform, they noted.
“Integration of Afterpay into Cash App and Square ecosystems remains a key focus, aiming to create a compelling daily experience for users,” they wrote, noting “stable to improving trends observed in Afterpay's core BNPL product, with a focus on integration and connecting Cash App and Square ecosystems.”
Despite its strong 2Q results, management’s commentary around slowing gross profit growth in its July update was enough to spook investors, sending Block's stock 12.5% lower to US$64.39 mid-morning on Friday.
Contact the author at emily.jarvie@proactiveinvestors.com
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