Block Inc (NYSE:SQ) shares made significant gains on Friday after the Square and Cash App parent company surprised investors by providing initial 2024 profitability guidance when it handed down its third quarter financial results after the closing bell a day earlier.
Block shares traded up 12% at US$49.29 at noon on Friday.
Analysts at the Bank of America (BoA) noted that Block’s unexpected initial 2024 guidance of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.4 billion and $875 million in adjusted operating income were well ahead of expectations of $3.4 billion and $390 million, respectively.
Block’s expectation that it will achieve the “Rule of 40,” being when a company’s revenue growth when added to its profit margin the total exceeds 40%, made up of mid-teens-plus gross profit growth and a mid-20% operating income margin implies nearly $3 billion in adjusted operating income in 2026, the analysts wrote.
They also pointed to the company’s enhanced operating expenses discipline, including capping its headcount at 12,000 employees in 2024, a 10% discount to its 13,000 headcount as of 3Q.
“Considering the sharp pullback in shares since early September, we are not surprised to see shares up significantly,” they wrote in a note to clients.
They reiterated their ‘Buy’ rating on the stock and US$77 price target.
Analysts at Jefferies agreed that Block’s valuation should see much-needed support with profitability on the horizon.
They also have a ‘Buy’ rating on the company and a US$60 price target.
“Though we don't expect the debate around the stock to quiet, we believe the quarter supplied far more incremental positives than negatives,” the Jefferies analysts wrote.
“An inflection to meaningful adjusted profitability is on the horizon as Block enters a new era of discipline, and for all the concerns about structural growth heading into the print (some of which are likely to persist), Block will exit the year growing gross profit nearly 20% year-over-year, trading at less than 10 times our new 2026 financial year adjusted EBITDA.”
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