Block share price jumps 7% on Q4 profit beat

This payments giant had a stronger than expected fourth-quarter, much to the delight of shareholders…

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Key points

  • Block has released its fourth-quarter update
  • The payments giant delivered strong profit growth
  • Its growth was stronger than expected and its shares are shooting higher

The Block Inc (ASX: SQ2) share price is shooting higher on Friday.

In morning trade, the payments company's shares are up 7% to $116.73.

Investors have been buying the Afterpay owner's shares following the release of its fourth quarter update.

Block share price jumps on strong quarter

  • Net revenue up 14% to US$4.65 billion
  • Net revenue (excluding crypto) up 33% to US$2.82 billion
  • Gross profit up 40% to US$1.66 billion
  • Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) up 53% to US$281 million
  • Net loss widened to US$114 million
  • Adjusted net earnings per share of 22 US cents

What happened during the quarter?

For the three months ended 31 December, Block reported a 40% increase in gross profit to US$1.66 billion. This was driven by a 22% increase in Square gross profit and a 64% jump in cash app gross profit.

Block also revealed that excluding its buy now pay later (BNPL) platform, gross profit was US$1.46 billion. This appears to indicate that Afterpay contributed US$200 million of gross profit during the quarter.

But the real star of the show was the Cash App business, which delivered gross profit of $848 million, an increase of 64% year over year. This reflects a 16% year over year increase in monthly active users to 51 million, with two out of three transacting each week on average.

How does this compare to expectations?

According to data from Bloomberg, the market was expecting revenue of US$4.57 billion, gross profit of US$1.63 billion, and adjusted earnings per share of 28 US cents.

This means that Block has beaten on the top line and with its gross profit but has fallen short of expectations with its earnings per share.

Outlook

Management revealed that it has started FY 2023 positively.

It estimates that it will deliver Block gross profit growth of 33% and combined company gross profit growth of 25% in January and February based on current trends.

Management believes the latter is more representative of underlying growth trends. That's because the Afterpay business was acquired at the end of January 2022 and the latter numbers assume the acquisition completed on 1 January and contributed $51 million gross profit in the prior corresponding period.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Block. The Motley Fool Australia has positions in and has recommended Block. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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