Block Q4 revenue: What lets it stand out in fintech sector

Shares of Block (SQ) are jumping after the fintech company posted its fourth-quarter earnings, edging past Wall Street's revenue expectations by posting $5.77 billion for the quarter. The company also posted $2.03 billion in gross profit — a gain of 22% year-over-year — and its full-year EBITDA guidance.

Moshe Katri, Wedbush Securities Managing Director, Equity Research — IT Services & Payments, joins Yahoo Finance to discuss Block's quarterly earnings and how the company is positioned to stand out against its competition.

Katri elaborates on what gives Block the edge among its fintech competitors:
"It's beyond just a hardware piece. One, the company historically decided that it wanted to move from SMB [Small and Mid-sized Business] to the mid-market — you need a different sales strategy, you need a different product mix, and all this is being addressed as we speak. On top of that, the company historically built its own products, and now, as we understand, management is kind of reconsidering that and deciding maybe to partner with ISVs — independent software vendors — to be able to appeal more in terms of the products that they're offering in their ecosystem."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

SEANA SMITH: Let's talk about the results that we got here from Block because shares are soaring here after the payment giant run by Jack Dorsey posted a surprising quarterly profit driven by demand for its Cash App service. You're looking at gains at just about 17.5%. Block also raised its adjusted EBITDA guidance for 2024. Let's get a deep dive into these results. We want to bring in Moshe Katri. He is managing director of Equity Research IT Services & Payments at Wedbush Securities. Moshe, it's great to have you here on the program.

Talk to us just about these results. Do you think it reinforces the potential upside that we could see with Block shares?

MOSHE KATRI: Good morning and good to be here. The results are driven, as you said, by two things. One is Cash App's performance. That's the consumer facing product, it's kind of a digital banking platform. And then the other is the financial discipline. That's very stringent that the company adopted and it seems to be at management. This time is very serious about unlocking the earnings power of the business.

And I think that's really appealing to a whole new set of investors, potential investors, and Block. And that's why the stock soared so much since the last earnings release, not only from yesterday. So I think there's definitely more conviction about the ability to unlock value, unlock earnings here. One part of the business that's still not doing well and we believe that the company's doing whatever it needs to do to change direction is seller or the merchant's business or square.

That business used to be-- that's really the core business that started the company. And throughout the years, they've built Cash App and Cash App now is really driving growth. In merchants the company seems to have slowed down materially. Some of it is competitive kind of dynamic. And some of it is probably internal execution issues that that management is in the process of addressing.

And that's going to be another big deal. In our view, during the next 6 to 12 months, we should see an improvement in revenue growth for merchants or the seller business.

BRAD SMITH: What is it that Block has laid out to give you that confidence that we would see some type of rebound in that merchant business? What is the point of sale? What is the hardware, the software that many merchants are demanding and seeing in some of those other competitors that they're not quite getting from Block right now?

Moshe Katri: That's beyond just the hardware piece. One, the company historically decided that it wanted to move to from SMB, so the mid-market. You need a different sales strategy. You need the different product mix. And all this is being addressed as we speak. On top of that, the company historically built its own products. And now as we understand, management is reconsidering that and deciding maybe to partner with ISVs and independent software vendors to be able to appeal more in terms of the products that they're offering in their ecosystem.

So there are a lot of these things that Jack Dorsey himself is focusing on given the fact that the head of merchants actually resigned about six months ago. So he's personally in charge of going through that transformation. The company did indicate that they've seen some positive indicators that the strategy is starting to work. So I guess we'll have to wait to see some more data points that proves it.

But listen, they have the first mover advantage. And their products and ecosystem are actually really great. They just have to strategize better.

SEANA SMITH: Moshe, one thing that they are focusing less on is international. Is that a strategy that makes sense to you?

MOSHE KATRI: Yeah. One of those-- that's one of those levers that they're pulling to make sure that they're unlocking the earnings power. They've been starting-- they've been focusing on international probably for about four to five years. We believe it's been margin dilutive. So it's not only the international piece that they're focusing less on. At some, it's basically disposing of unprofitable businesses.

Tidal, for example, that's one of those businesses that they're probably getting rid of. I think it's a portfolio enhancement strategy that they're going through right now, just given the fact that the business, the core business is doing really well. And Cash App is just on fire. That's the digital banking product. So there's a lot of growth to focus on without really focusing on other areas that at this point haven't been as profitable for the company.

BRAD SMITH: Moshe, when you think about how this company is going to get back to what they were laying out within this report, the rule of thumb-- rule of 40 rather. What is the timeline? How are you going to be tracking them up against getting to that target?

MOSHE KATRI: Well, first of all, there have been actually doing that, they're on track to get there. They started doing it last quarter. And I believe management is targeting 2026 to get there. So you have a couple of years to go.

BRAD SMITH: All right. Moshe Katri who is the Wedbush Securities managing director of Equity Research and IT services and Payments, great to have you here with us today, thanks so much.

MOSHE KATRI: Thanks, guys. Have a great weekend.

BRAD SMITH: You too.