Block, the company once recognized as Square, unveiled its third-quarter earnings this past Thursday, which fell short of Wall Street’s lofty expectations. While initial reactions to the report saw a decline in stock prices, the subsequent trading sessions were kinder, with investors placing greater importance on profitability rather than revenue figures. The earnings report revealed a mixed bag: earnings per share (EPS) came in slightly above expectations at 88 cents adjusted compared to the anticipated 87 cents. However, the revenue of $5.98 billion notably lagged behind the Wall Street consensus of $6.24 billion.
The finance chief of Block, Amrita Ahuja, articulated an insightful perspective during an interview on CNBC, pointing out that analysts are now prioritizing gross profit over total revenue. This pivot underscores a growing recognition that profitability metrics can often better reflect a company’s financial health in the eyes of investors. Block managed to deliver $2.25 billion in gross profit, showcasing a robust 19% year-over-year increase. This performance represented a significant turnaround from their previous year’s net loss, with a reported profit of $283.7 million, equating to 45 cents per share.
One of the key highlights of the earnings report was the performance of Cash App, Block’s flagship mobile payment service. This platform has emerged as a cornerstone of the company’s profitability, generating $1.31 billion in gross profit, reflecting an impressive 21% growth compared to the same quarter last year. The increased traction within its customer base was also evident, with monthly active users of the Cash App Card surpassing 24 million, up 11% year-over-year. However, the company recorded gross payment volume at $62.4 billion, falling short of the $64.3 billion analysts had initially projected.
Despite missing this revenue target, Block expressed optimism regarding its cost structure improvements and projected a 14% increase in gross profit for Q4, foreseeing total profits of approximately $2.31 billion. Such resilience in financial performance amidst challenging conditions hints at the company’s strategic focus on enhancing its core services and user engagement.
Amid discussions surrounding Block’s performance, the company’s buy now, pay later (BNPL) services emerged as a focal point of interest. After acquiring Australian BNPL frontrunner Afterpay for $29 billion in 2021, Block has been eager to innovate within this segment. CEO Jack Dorsey dedicated a portion of his shareholder letter to outlining the company’s various lending offerings, including Square Loans, Afterpay, and Cash App Borrow.
Ahuja highlighted the role of artificial intelligence in refining the company’s lending operations, allowing for more informed decisions and effective risk management. This technological enhancement has enabled Block to maintain impressively low loss rates—approximately 1% for BNPL, 3% for Cash App Borrow, and 4% for Square Loans. Analysts, including Kevin Kennedy from Third Bridge, have recognized lending as vital for the platform’s long-term monetization strategies, suggesting that Cash App could evolve beyond a fintech platform into a more integrated financial ecosystem.
To position itself for growth and streamline operations, Block has implemented cost-cutting measures, including scaling back investments in Tidal, the music streaming service, and closing its Bitcoin-focused arm, TBD. Following prior layoffs, Dorsey reiterated the commitment to adapting the company’s strategic focus, specifically aiming to enhance Bitcoin accessibility through the Cash App, in which Block holds approximately 8,300 bitcoins valued at around $630 million.
As the company strides forward, it’s clear that while third-quarter highlights reveal struggles, the adaptability and innovation shown by Block suggest a determined drive towards profitability and sustainable growth. By leveraging its strengths in payment solutions and constantly refining its services, Block appears poised to navigate the complex and ever-evolving financial landscape of the future. With continued focus on customer-centric technologies and strategic lending initiatives, investors may find renewed confidence in the returning potential of this fintech giant.