Block Inc. focused on… To get smaller, this paid off for parent Square last quarter as it posted surprising profits.
Shares rose more than 13% in the extended session on Thursday as Block also offered an upbeat outlook for the bottom line.
The company on Thursday reported fourth-quarter net income of $10 million, or 2 cents per share, while reporting a loss of $541 million, or 93 cents per share, in the same period a year earlier. Analysts tracked by FactSet were expecting a loss of 1 cent per share.
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It earned 45 cents per share, below the FactSet consensus, which was 58 cents per share. But Block also reported $562 million in adjusted earnings before interest, taxes, and amortization (Ebitda), above consensus expectations of $448 million.
“This is driving continued growth in the business at scale,” Amrita Ahuja, CFO, told MarketWatch. The company is seeing “continuous growth” across the Square and Cash App ecosystems, while working to make the business more efficient, including through job cuts that have brought the company's headcount to fewer than 12,000 employees.
The constraints “were clear to us,” Ahuja said, as Block refocuses its strategy for both sides of the business. Last quarter, it explained to investors the strategy for its Square Seller business, which included a push to become more local through a go-to-market approach and better embrace artificial intelligence.
This time, the company focused its shareholder letter on Cash App, stating, for example, the goal of attracting more customers to banking services.
“We believe we have an opportunity to lead and create core banking relationships with these customers,” Ahuja said. The company's Cash App debit card can serve as a “gateway” prompting users to try other banking services from the company, and Block introduced the card earlier in the onboarding process for new users.
The “holy grail” for many financial services companies is taking direct deposits from consumers. That's a priority for Block, too.
The company sees “a significant increase in value and engagement as customers choose to deposit their paychecks with us: Cash App Card actives who deposit at least $2,000 in paychecks per month spend nearly 6x more than Cash App Card actives who don’t deposit a paycheck.” . With Cash App,” according to the shareholder letter.
“We believe our direct deposit offering has the advantage of no fees or minimums, early availability for direct deposit and the benefit of our active funds in the broader Cash App ecosystem where they can send, spend on Cash App Card or Cash App Pay, invest,” etc. Ahuja added on Block's earnings call.
While Square Seller's business has long been focused on moving more of the “upmarket” — or toward larger merchants — the term has come up in discussion of Block's Cash App as well.
Jack Dorsey, who heads the company and holds the title of Block Head, said that the company is working to “convey more sophistication with families, which we have seen some early positive signs of.”
Overall, Cash App had 56 million monthly active users in December, an increase of 9% from the previous year. Total inflows for the fourth quarter amounted to $63 billion, an increase of 18% over the previous year and an increase of 2% sequentially.
Cash App generated total revenue of $1.18 billion, an increase of 25% from the previous year. Analysts focus on gross profit rather than revenue for Block's business since the company generates a lot of Bitcoin (BTCUSD).
Revenues that carry thin margins thus mask growth trends elsewhere.
Square's seller business reported fourth-quarter gross profit of $828 million, up 18%.
Gross profit was $2.03 billion, up 22% and slightly ahead of the FactSet consensus, which was $1.97 billion. Revenue was $5.77 billion, while analysts were looking for $5.70 billion.
Looking at the first quarter, Block expects gross profit of $2.00 billion to $2.02 billion, while analysts were expecting $2.01 billion. The company is also looking at between $570 million to $590 million of adjusted EBITDA, ahead of the consensus view of $520 million.
For the full year, the company's “provisional” guidance calls for at least $8.65 billion in gross earnings and at least $2.63 billion in adjusted EBITDA. Analysts had expected $8.75 billion and $2.40 billion, respectively.
“These forecasts do not assume any additional macroeconomic deterioration, which could impact the results,” Block said in the shareholder letter.
