Why is the Block share price rocketing 10% on Friday?

This payments company outperformed expectations during the first quarter.

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The Block Inc (ASX: SQ2) share price is ending the week with a bang.

In morning trade, the payments company's shares are rocketing 10% to $116.39.

Why is the Block share price rocketing today?

Investors have been fighting to get hold of the company's shares this morning after its quarterly update smashed expectations.

During the first quarter, the company's gross profit increased 22% year on year to US$2.09 billion.

This reflects a 25% increase in Cash App gross profit to US$1.26 billion and a 19% lift in Square gross profit to US$820 million.

This growth was underpinned by a 6.4% increase in gross payment volume to US$54.4 billion and improved margins. This ultimately led to adjusted EBITDA increasing 91% to US$705 million, net income jumping 380% to US$472 million, and adjusted earnings per share almost doubling to 85 US cents.

How does this compare to expectations?

While the company's gross payment volumes fell a touch short of expectations, this couldn't stop Block from smashing the market's earnings estimates.

The consensus estimate was for earnings per share of 73 US cents, whereas the company reported 85 US cents. This goes some way to explaining why the Block share price is surging on Friday.

Management commentary

Block's chief operating officer and chief financial officer, Amrita Ahuja, was pleased with the quarter. On the earnings call, she said:

We delivered strong results across the company during the first quarter. Gross profit was $2.09 billion, up 22% year over year, consistent with the fourth quarter. Adjusted EBITDA was $705 million, nearly doubling year over year, and Adjusted Operating Income was $364 million, up 7x year over year.

Our profitability improved as we showed discipline across a range of expenses, ending the quarter below our 12,000 person cap and achieving leverage on corporate overhead expenses. For the twelve months ending in March, Adjusted Free Cash Flow was $1.1 billion, up more than 2.5x versus the prior twelve months and represented 50% of Adjusted EBITDA, an improvement compared to the 36% conversion rate in the prior period.

Outlook

Also giving the Block share price a boost today is management increasing its guidance for FY 2024 after just one quarter. Ahuja said:

We are raising our full-year 2024 guidance for both gross profit and profitability, not only reflecting the Q1 outperformance, but also reflecting our raised expectations for the remainder of the year. For full-year 2024, we are now expecting gross profit of at least $8.78 billion, or 17% growth year over year.

We expect Cash App's gross profit growth to moderate slightly from the first quarter's 25% as we lap some meaningful pricing and structural cost benefits, with relatively stable growth from the second quarter through fourth quarter.

The company has also lifted its adjusted EBITDA guidance to US$2.76 billion for FY 2024. This compares to its previous guidance of US$2.63 billion.

The Block share price is now up 33% since this time last year.

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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