Block share price on watch amid Q1 earnings miss

Block shares will be on watch on Friday…

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Key points

  • Block has released its first quarter results and revealed further strong growth from its Cash App and Square businesses
  • The Afterpay business made its first contribution to the payments company's gross profit
  • However, this wasn't enough to help Block hit consensus estimates

The Block Inc (ASX: SQ2) share price will be one to watch on Friday.

This follows a market meltdown on Wall Street and the release of the payments giant’s first-quarter update.

Block share price on watch amid strong growth but big loss

  • Gross payment volume (GPV) up 31% year on year to US$43.5 billion
  • Net revenue down 22% to US$3.96 billion
  • Net revenue excluding bitcoin revenue up 44% to US$2.23 billion
  • Gross profit up 34% year on year to US$1.29 billion
  • Net loss of US$204 million

What happened during the quarter?

For the three months ended 31 March, Block reported a 22% decline in revenue to US$3.96 billion. However, this was driven by softer cryptocurrency demand. Excluding bitcoin revenue, total net revenue in the first quarter was US$2.23 billion, up 44% year over year.

This was driven by a 72% increase in subscription and services-based revenue to US$960 million and a 28% lift in transaction-based revenue to US$1.23 billion. The latter reflects a 31% jump in GPV to US$43.5 billion.

As for earnings, Block generated gross profit of US$1.29 billion, up 34% year over year. This reflects a 26% increase in gross profit from Cash App to US$624 million and a 41% lift in Square gross profit to US$661 million.

The acquired Afterpay business contributed US$92 million of gross profit in the months of February and March, with US$46 million of gross profit recognised in each of Cash App and Square. Excluding Afterpay, gross profit was US$1.2 billion, up 25% year over year.

On the bottom line, Block record a net loss of US$204 million. Though, on an adjusted basis, Block reported earnings per share of 18 US cents.

How does this compare to expectations?

According to consensus estimates, Block has missed on both its earnings per share and revenue for the period. The former was 2 US cents short and the latter was US$180 million short of expectations.

However, the market appears to be looking beyond this. After falling 10.5% overnight on Wall Street because of the market selloff, the Block share price is rebounding in after-hours trade.

At the time of writing, the company’s NYSE-listed shares are up 8.5% after market. While this won’t claw back all of last night’s declines, it won’t be a bad as it was looking just an hour or two earlier.

Outlook

The catalyst for the Block share price recovery appears to have been the company’s outlook commentary. Block has started the second-quarter positively, with Square GPV growth accelerating in April.

It commented: “For the month of April, in aggregate, Square GPV is expected to be up 29% year over year. On a three-year CAGR basis, GPV growth is expected to be 24% in April, compared to 22% growth in the first quarter.”

“In April, we expect Cash App gross profit, excluding Afterpay, to grow on a year-over-year and three-year CAGR basis, driven by growth in monthly transacting actives, engagement across our ecosystem, and inflows into Cash App.”

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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