Block’s Q3 Earnings: A Closer Look
Revenue Falls Short, but Profitability Metrics Shine
Block, the financial services company formerly known as Square, released its third-quarter earnings report on Thursday, with revenue falling short of Wall Street expectations. However, the company’s profitability metrics told a different story, with gross profit increasing 19% year-over-year to $2.25 billion.
Gross Profit Takes Center Stage
According to Block’s finance chief, Amrita Ahuja, analysts place more emphasis on gross profit than revenue, and for good reason. The company’s earnings growth and outperformance relative to expectations were notable highlights of the report. Net income reached $283.7 million, or 45 cents per share, a significant improvement from the $88.7 million loss, or 15 cents per share, reported last year.
Cash App Continues to Thrive
Block’s popular mobile payment platform, Cash App, continued to drive profitability, reporting $1.31 billion in gross profit, a 21% year-over-year increase. Monthly active users of the Cash App Card rose 11% to over 24 million, while gross payment volume reached $62.4 billion, albeit slightly below analysts’ estimates.
Cost Structure Improvements
The company has made significant strides in improving its cost structure, with gross profit for the fourth quarter expected to increase 14% to $2.31 billion.
Buy Now, Pay Later Unit Takes Center Stage
Block’s acquisition of Australian BNPL firm Afterpay for $29 billion in 2021 has been a key area of focus for analysts. CEO Jack Dorsey dedicated his quarterly shareholder letter to explaining the company’s lending products, including Square Loans, Afterpay Buy Now Pay Later, and Cash App Borrow.
Lending Products: A Key Driver for Growth
Dorsey envisions transforming Cash App Cards into a better alternative to credit cards with the launch of Afterpay on Cash App Card. Ahuja emphasized the company’s use of artificial intelligence to enable smarter and faster lending decisions, which has helped maintain low loss rates across its products.
Future Growth Opportunities
Analysts believe that lending will be a primary driver for future Cash App user monetization. Additionally, Cash App could help Block develop an advertising business and charge merchants for promotional pricing or brand placement.
Cost-Cutting Measures
As part of its cost-cutting efforts, Block is scaling back its investment in Tidal, the music-streaming service founded by Jay-Z, and winding down TBD, the Bitcoin-focused arm of Block. The company had previously undergone layoffs earlier this year.
Bitcoin Focus
Dorsey emphasized the company’s focus on making bitcoin more accessible through Cash App, and Block holds 8,300 bitcoin on its balance sheet, currently worth around $630 million.
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