Block ‘aficionados’ who got used to beat-and-raise quarters in the past ‘are likely to be disappointed,’ analyst says

Shares of Block Inc. fell 7% in after-hours trading Thursday after the payment-technology company swung to a loss in an earnings report that seemed to cause some controversy about whether the company actually beat or missed expectations on several key metrics.

Block SQ, +1.85%, which somewhat recently changed its corporate name from Square, posted a net loss of $208.0 million, or 36 cents a share, whereas it logged net income of $204.0 million, or 40 cents a share, in the year-earlier period. On an adjusted basis, Block earned 18 cents a share, down from 49 cents a share in the year-before quarter, while analysts had been modeling 16 cents a share.

Block’s revenue fell to $4.40 billion from $4.68 billion, reflecting a sharp decline in bitcoin BTCUSD, 2.62% contributions in the latest quarter. Bitcoin revenue fell 34% to $1.79 billion in the second quarter.

Analysts tracked by FactSet had been expecting $4.33 billion in overall revenue for the quarter.

While bitcoin trading generates heavy revenue for Block, it comes with minimal profit, one reason why executives at the company and the analysts who cover the stock tend to look at Block’s overall gross-profit figures as a proxy for revenue.

“Gross profit captures our take on those bitcoin sales, which is why you see the more consistent trends on a gross profit basis relative to revenue,” Chief Financial Officer Amrita Adhuja told reporters on a media call following the report.

Gross profit came in at $1.47 billion for the latest quarter, up from $1.14 billion a year before, whereas analysts had been anticipating $1.48 billion. Excluding buy-now-pay-later contributions related to the company’s recent acquisition of Afterpay, however, Block’s gross profit was $1.32 billion.

Gross payment volume reached $52.5 billion, up from $42.8 billion a year before, but below the FactSet consensus, which was for $53.2 billion.

Block generated $755 million in gross profit for its Square seller business, above the FactSet consensus, which called for $735 million. Excluding BNPL, the segment’s gross profit came in at $681 million.

While GPV for the company’s Square business grew 25% on a year-over-year basis in the second quarter, the company anticipates 18% growth on the metric for the month of July.

The company’s Cash App business saw gross profit of $705 million, up from $546 million a year before. Analysts tracked by FactSet were modeling $678 million. Gross profit at Cash App for the latest quarter was $630 million when excluding BNPL impacts.

While Block appeared to beat FactSet consensus expectations with its headline Cash App and Square gross-profit figures, analysts seemed to have differing views on whether the company actually exceeded expectations or fell short of them. That likely has to do with whether or not BNPL impacts are included in consensus figures, and whether analysts on the whole are consistent about whether or not to include BNPL in their estimates—two factors that aren’t immediately clear in looking at the FactSet numbers.

Square’s “second consecutive quarter missing gross profits (CashApp and Square/merchants) as well as GPV likely reflects SQ’s end-market consumer/merchant profile, which is struggling during the current high-inflation environment,” Wedbush analyst Moshe Katri wrote in an email. “We also believe this will continue to fuel investor concerns over SQ’s competitive position vis-à-vis the likes of Fiserv’s FISV, -1.40% Clover as well as Adyen’s ADYEN, +0.86% ongoing efforts to expand into the US SMB [small- and medium-business] space.”

RBC Capital Markets analyst Daniel Perlin, meanwhile, indicated that Block beat his own expectations for the Square business but fell short on Cash App. And Jefferies analyst Trevor Williams said that Block beat the Street on the Cash App but came up shy with the Square business, while excluding Afterpay impacts as well as Paycheck Protection Program impacts on the seller business.

Executives offered in the company’s shareholder letter that they anticipate Cash App gross profit to have grown on a year-over-year basis in July, “driven by growth in monthly transacting actives, engagement across our ecosystem, and inflows into Cash App.”

Ahuja told reporters that Block continues to “see strong growth here, particularly in the breadth of the ecosystem and the total amount of inflows coming in.”

“We have seen a diverse range of use cases on Cash App Card, with 33% of spend across gas, utilities and travel, 30% on food and grocery, and 22% at big-box and discount retailers,” she said on the company’s earnings call.

Mizuho analyst Dan Dolev called the results “somewhat of a bummer,” adding that Block “aficionados who are used to nice beat & raise in prior years are likely to be disappointed — hence the negative share reaction.”

Shares of Block have lost about two-thirds of their value in the past 12 months, as the S&P 500 SPX, -0.08% has fallen about 6%.