Block's (SQ) Q1 Earnings Beat Estimates, Revenues Dip Y/Y
Block SQ reported first-quarter 2022 adjusted earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by 50%. However, the figure declined 56.1% year over year and 33.4% sequentially.
Net revenues of $3.96 billion decreased 22% from the prior-year quarter and 2.9% from the previous quarter. Further, the figure missed the Zacks Consensus Estimate of $4.23 billion.
The year-over-year fall in revenues was primarily attributed to the massive decline in the company’s bitcoin revenues. Weakness in the Cash App ecosystem, which generated $2.46 billion in revenues (declining 39% year over year), remained another negative.
Nevertheless, Block witnessed strong growth in transaction, subscription and hardware revenues.
The company also witnessed solid traction across the Square ecosystem, which generated $1.44 billion of revenues, up 42% year over year. Afterpay buyout contributed $65 million to the Square ecosystem revenues, which remained noteworthy.
Additionally, accelerating gross payment volume (GPV) drove the results.
Block, Inc. Price, Consensus and EPS Surprise
Block, Inc. price-consensus-eps-surprise-chart | Block, Inc. Quote
Gross Payment Volume
GPV in the first quarter amounted to $43.5 billion, up 31% from the year-ago quarter. This was driven by strength across the Square ecosystem. Notably, Square GPV accounted for 91% of the total GPV in the first quarter. Square GPV was up 33% year over year.
Cash App, which accounted for $4 billion of the overall GPV (9%), remained a positive. The figure increased 17% year over year.
Block continued to experience improvement in its card-present volumes in the reported quarter. Card-present GPV was up 41% from the year-ago quarter.
The card-not-present GPV witnessed year-over-year growth of 21% in the first quarter. Robust online channels, including Square Online, Invoices, Virtual Terminal and eCommerce API, contributed to the upside.
Top-Line Details
Transaction (31% of net revenues): The company generated transaction revenues of $1.23 billion, up 28% year over year. Strong Square ecosystem accounted for $1.12 billion of transaction revenues, up 29% year over year. Further, Cash App contributed $109 million to transaction revenues, up 19% year over year, owing to the rising number of transactions as well as business accounts.
Subscription and Services (24% of revenues): The company generated $960 million in revenues from the category, jumping 72% from the year-ago quarter. The improvement can be attributed to a strong performance by the Square ecosystem, which contributed $283 million to subscription and services revenues, up 133% year over year. Further, Cash App contributed $622 million to the category’s top line. The figure was up 43% from the year-ago quarter.
Hardware (1% of revenues): The company generated revenues of $37 million from the business, up 30% year over year. This was driven by strong unit sales of hardware devices like Square Register and Square Terminal.
Bitcoin (44% of revenues): The company generated revenues of $1.73 billion from the category, down 51% year over year. This was attributed to sluggish consumer demand and a slowdown in trading activities, owing to stability in bitcoin prices.
Operating Details
Per management, gross profit grew 34% from the year-ago quarter to $1.3 billion. Further, the gross margin expanded to 32.7% from 19.1% in the prior-year quarter.
Adjusted EBITDA was $195 million in the reported quarter, down 17.4% year over year.
Operating expenses were $1.5 billion, ringing 70% from the prior-year quarter.
Product development expenses were $484.8 million, up 56% year over year primarily due to rising headcount and personnel costs in engineering, data science and design teams.
General and administrative expenses were $444.3 million, up 127% from the prior-year quarter. This was primarily caused by finance, legal, compliance and support personnel costs, and expenses associated with the pending Afterpay buyout.
Sales and marketing costs were $501.6 million, up 44% year over year due to an increase in Cash App marketing expenses and a hike in advertising, personnel and other costs.
The operating loss was $226.8 million against the operating income of $67.7 million in the year-ago quarter.
Balance Sheet
As of Mar 31, 2022, the cash and cash equivalent balance was $3.99 billion, down from $4.44 billion as of Dec 31, 2022.
Short-term investments were $796.7 million for the reported quarter, down from $869.3 million in the previous quarter.
Long-term debt was $4.56 billion compared with $4.55 billion in the fourth quarter.
Zacks Rank & Stocks to Consider
Currently, Block has a Zacks Rank #3 (Hold).
Investors interested in the broader technology sector can consider some better-ranked stocks like Jabil JBL, Jack Henry & Associates JKHY and Broadcom AVGO. While Jabil currently sports a Zacks Rank #1 (Strong Buy), Jack Henry & Associates and Broadcom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Jabil has gained 5.5% over a year. The long-term earnings growth rate for JBL is currently projected at 12%.
Jack Henry & Associates has gained 16.9% over a year. The long-term earnings growth rate for JKHY is currently projected at 17%.
Broadcom has gained 20% over a year. The long-term earnings growth rate for AVGO is currently projected at 14.5%.
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