Block's stock soars 8 per cent on mixed results
The crypto winter took a toll on Block's balance sheet.
Block’s stock climbed nearly 9 per cent higher in after-hours trading on Thursday on the heels of the company’s Q4 earnings report.
Top-line results beat Wall Street estimates, with total net revenue coming at $4.65bn compared to a consensus of $4.61bn. However, Block missed on the bottom line with adjusted EPS of $0.22 per share vs. estimates of $0.30.
Investors ultimately chose to accentuate the positive and were seemingly impressed with Block’s gross profit, a measure of transactional business. This item jumped 40 per cent vs. year-ago levels to $1.66bn vs. analyst expectations of $1.53bn. However, Block is still losing money, reporting a Q4 net loss of $114m, or $0.19 per share.
Cash App continues to shine. This time, the Cash App Card stole the show and more of the banks' market share. The physical card delivered over $750m in gross profit, up 56 per cent year-over-year. This represented over 25 per cent of Cash App’s gross profit.
Bitcoin’s ongoing woes spilt over into Block’s balance sheet, with the payments company taking a $9m Q4 impairment loss on its BTC investment. For the full-year 2022, that impairment loss was a steeper $47m.
Customers continued buying the leading crypto on the Cash App in Q4 to the tune of $1.83bn. However, they're not buying as much as they used to, as it represented a 7 per cent drop vs. the year-ago period. Block’s Q4 bitcoin gross profit was $35m, a 25% decline year-over-year. Block blamed this trend on the crypto winter, which saw the bitcoin price lose roughly two-thirds of its value last year.
Meanwhile, Block’s BNPL platform delivered $264m in Q4 revenue and $196m in gross profit. The company says it’s “seeing new and meaningful opportunities in our BNPL platform that can further connect our Square and Cash App ecosystems.”
While Block’s results weren’t a slam dunk, investors aren’t complaining. It might have had something to do with Block’s guidance. Jack Dorsey’s company is eyeing a Q1 gross profit of 25 per cent compared with 21 per cent in Q4. In addition, Block is forecasting $1.3bn in 2023 EBITDA.
Wolfe Research analyst Darrin Peller attributes the rally in the share price to “strong gross profit trends and adjusted EBITDA guidance meeting buy-side [expectations] despite uncertainty into the print.”
Leading up to Block’s results, KeyBanc raised its price target on SQ from $90 to $100 and maintained its overweight rating. Including Thursday's after-hours rally, SQ shares are up over 21 per cent year-to-date.