Why is the Block share price rocketing 24% on Friday?

Someone put a rocket under this tech stock on Friday morning.

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The Block Inc (ASX: SQ2) share price is catching the eye on Friday.

In morning trade, the payments company's shares have jumped 24% to $80.42.

This follows the release of Block's third-quarter update.

Block share price jumps on solid update

  • Revenue up 24% to U$5.62 billion
  • Gross profit up 21% to US$1.9 billion
  • Adjusted EBITDA up 45.9% to US$477 million
  • Operating loss of US$10 million
  • Adjusted operating income up 180% to US$90 million

What happened during the quarter?

For the three months ended 30 September, Block reported a 24% increase in revenue to US$5.62 billion. This was stronger than the market was expecting, with the consensus estimate sitting at approximately US$5.43 billion.

Growing at a similarly strong rate was the company's gross profit. It reported a 21% lift to US$1.9 billion for the three months. This was driven by a 15% increase in Square gross profit to US$899 million and a 27% increase in Cash App gross profit to US$984 million.

In respect to the latter, management revealed that Cash App Pay volumes have experienced rapid growth over the past quarter. As of September, there were more than 2 million Cash App Pay monthly actives, doubling since June.

Cash App Pay is Block's fast and simple payment method that lets users pay for purchases either by scanning a simple QR code or by tapping Cash App Pay at checkout.

Management advised that its growth has been driven by recent partnerships, such as DoorDash, Adyen, and Stripe, as well as other large Afterpay merchants.

Speaking of Afterpay, on the company's earnings call, its chief operating officer and chief financial officer, Amrita Ahuja, revealed that its performance was strong during the quarter. She said:

Turning to our BNPL platform, which contributed $94 million of gross profit to each of Square and Cash App in the third quarter. GMV from our BNPL platform was $6.7 billion in the third quarter, an increase of 24% year over year. Losses on consumer receivables were 0.84% of GMV, an improvement quarter over quarter and year over year.

And while the company still recorded a loss for the period, this was better than the market was expecting. Block's loss equates to 5 US cents per share, which compares favourably to the consensus estimate of 11 US cents per share.

This may explain why the Block share price is having such a stellar session on Friday.

Management commentary

Amrita Ahuja appears to believe the company is well-positioned for growth this quarter. Commenting on the company's outlook, she said:

For Square, we expect gross profit growth to improve from the third quarter's 15% growth rate as we lap more favorable comparisons from the prior year and we get the first full quarter benefit from pricing changes on Square Invoices we implemented in the third quarter.

For Cash App, we expect gross profit growth to moderate on a year-over-year basis from the third quarter's 27% as we lap stronger growth from the prior year. We continue to expect all three components of the inflows framework to grow on a year-over-year basis in 2023.

Ahuja also provided earnings guidance for the fourth quarter, which has resulted in an increase to Block's FY 2023 guidance. She adds:

Looking at profitability, we expect to deliver $430 to $450 million in Adjusted EBITDA and $40 to $60 million in Adjusted Operating Income in the fourth quarter. And we are raising our full year 2023 profit guide. We expect Adjusted EBITDA of $1.66 to $1.68 billion and Adjusted Operating Income of $205 to $225 million. These are increases of $170 million and $190 million respectively at the midpoint, compared to our prior guide.

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. The Motley Fool Australia has positions in and has recommended Block. 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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