Block share price in danger of sinking following Q2 update

This tech share could be heading south on Friday…

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Key points

  • Block has released its second quarter update this morning
  • The payments giant delivered a result in line with expectations
  • However, its outlook commentary appears to have disappointed the market

The Block Inc (ASX: SQ2) share price looks likely to drop into the red on Friday.

This follows the release of the payments company’s second quarter update this morning.

Block share price expected to tumble amid soft guidance

  • Total quarterly revenue down 6% year over year to US$4.4 billion
  • Quarterly gross profit up 29% year over year to US$1.47 billion
  • Adjusted EBITDA down 48% to US$197 million
  • Net loss of US$208 million
  • Growth expected to moderate early in Q3

What happened during the quarter?

For the three months ended 30 June, Block reported a 6% reduction in revenue to US$4.4 billion. This reflects a decrease in bitcoin revenue, which offset a 34% in revenue excluding the cryptocurrency.

Block’s gross profit came in at US$1.47 billion for the quarter. This was a 29% increase year over year and up 47% on a three-year compound annual growth rate (CAGR) basis.

Excluding its Afterpay buy now pay later (BNPL) platform, gross profit was US$1.32 billion. This was up 16% year over year and 42% on a three-year CAGR basis.

Block’s growth was driven by solid performances from its Square ecosystem and Cash App business. Both reported gross profit growth of 29% to US$755 million and US$705 million, respectively.

The food and drink channel was the highlight for the company. It has achieved the fastest gross profit growth of any Square vertical on a five-year CAGR basis. Through the first six months of 2022, gross payment volume (GPV) from Square for Restaurants more than doubled year over year.

How does this compare to expectations?

The good news is that Block’s gross profit was in line with the market’s expectations and its revenue was a touch ahead.

That was despite Block’s gross payment volume of US$52.5 billion missing the market consensus estimate of US$53.47 billion.

However, it may not be enough to stop the Block share price from being sold off today. That’s because of the company’s disappointing outlook commentary.

Outlook

Management is expecting its growth to moderate during the early part of the third quarter of FY 2022.

It advised that Square GPV is expected to be up 18% year on year in July. This compares to 25% growth during the second quarter.

And worryingly, the company didn’t commit to a percentage growth figure for the Cash App business. It only expects “to grow on a year-over-year” basis.

Finally, management warned that it operating expenses are expected to increase by US$75 million in the third quarter compared to the second quarter.

In after-hours trade on Wall Street, the Block share price is down 7%.

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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