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Block's (SQ) Q1 Earnings Beat Estimates, Revenues Dip Y/Y

·5 min read

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 and EPS Surprise
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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Block, Inc. (SQ) : Free Stock Analysis Report

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