Shares of Block (SQ) have surged more than 20% over the past thirty days, besting the 4% rise in the S&P 500 index. Investors are becoming more optimistic about Block's growth potential, which is closely tied to the company’s ability to not only expand its product offerings, but also management’s ability to enter new intentional markets.
The payments processing specialist will report second quarter fiscal 2023 earnings results after the closing bell Thursday. Investors will want to know just how much the company’s payment ecosystem has grown amid recent competition from rivals like PayPal (PYPL). Originally called Square, and known for its peer-to-peer money-transfer service Cash App, the company rebranded its name to Block to present an emphasis on its shift towards blockchain technology.
Although the Fintech specialist continues to build out what it envisions as a decentralized finance business using cryptocurrency, the management expects Cash App, which is already used to buy and sell Bitcoin, to lead the new business. Currently boasting 53 million active accounts at the end of the first-quarter, Cash app has grown in popularity with users with more than 14 million new users added in the last two years alone. With $3.3 billion in Q1 revenues, resulting in $931 million in gross profit, Block’s Cash App gross profit growth reached 49% year over year in Q1.
Cash App is poised to remain a profit center for Block and will drive the company's consolidated gross profit growth. That said, the post-pandemic results are not as strong as they were during the pandemic. And that’s been the case for all Fintech companies, including rival PayPal, as growth has moderated. However, for Block, the company is still expected to grow at robust double-digit rates annually for the foreseeable future. The management on Thursday must tout that growth potential to keep investors excited.
For the three months that ended June, Wall Street expects the San Francisco, Calif.-based company to earn 36 cents per share on revenue of $5.1 billion. This compares to the year-ago quarter when earnings came to 18 cents per share on revenue of $4.4 billion. For the full year, ending in December, earnings are projected to rise 71% year over year to $1.69 per share, while full-year revenue of $20.7 billion would rise 18.1% year over year.
Concerns of slowing growth, compressing margins and rising competition has pressured the stock. This is even though the company has posted a beat on both the top and bottom lines in the fourth straight quarters and counting. The company’s CEO Jack Dorsey has discussed the importance of achieving financial flexibility so the company can invest in various new technology concepts, while also outlining a new long-term investment framework aimed at improving the company’s earnings quality.
These various initiatives have begun to gain traction, evidenced by the company’s recent results. The company not only beat on adjusted EPS and revenue, but also it raised guidance for fiscal 2023. Q1 EPS of 40 cents beat by 6 cents, while revenue of $4.99 billion rose 26% year over year,, topping forecasts by $390 million. Q1 gross payment volume of $51.1 billion was also better than the $50.9 billion consensus. Cash App generated $3.27 billion of revenue in Q1, with gross profit of $931 million. Cash App monthly transacting actives rose to 53 million during the quarter, rising 15% year over year.
Meanwhile, the Square ecosystem generated $1.67 billion revenue, slightly lower than the $1.76 billion in Q1. However, gross profit of of $770 million grew 16.5% year over year from $661 million in the year-ago quarter. On Thursday investors will look to see whether these metrics can improve, along with the details provided by management outlining ways to strengthen the company’s earnings quality.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Other Topics
Stocks
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio