Block Stock Fell 7% Despite Q2 Results Beat

Block (NYSE:SQ) posted Q2, 2022 results that show a significant decline from the year-ago quarter but still topped Wall Street expectations. The stock gained 1.85% on August 4, 2022, but fell 7.42% in extended trading hours as investors reacted to revenue and earnings declining from the year-ago quarter. The company projecting slow growth in gross payment volume in the Square ecosystem also spooked the markets

Revenue and Earnings Decline Signal Weakness

Revenue in the quarter was down 6% from the year-ago quarter to $4.40 billion but still beat consensus estimates of $4.33 billion. The decline was triggered by a drop in Bitcoin revenue. However, transaction-based revenue was up 20% from the year-ago quarter to $1.48 billion.

Subscription and services-based revenue increased 60% from the year-ago quarter to $1.09 billion. Block processed $52.5 billion in gross payment volume during the quarter, a 23% increase from the year-ago quarter.

Block delivered an adjusted net income per share of $0.18, down from $0.49 delivered in the year-ago quarter. The figure came above the consensus estimate of $0.16 a share. The decline was driven by an increase in operating expenses that were up 66% from the year-ago quarter to $1.68 billion.

Square and Cash App Ecosystems in Numbers

Revenue in the Square ecosystem increased 32% from the year-ago quarter to $1.73 billion. Gross profit increased 29% from the year-ago quarter to $755 million. Transaction-based revenue increased 22% from the year-ago quarter, driven by in-person and online channels. Whoever square registered a decline in debit card transactions.

In the Cash App, ecosystem revenue was down 21% from the year-ago quarter to $2.62 billion as gross profit increased 29% to $705 million. Gross payment volume was up 4% from the year-ago quarter to $4.2 billion. Transaction-based revenue was up 5% from the year-ago quarter to $116 million. Subscription and service-based revenue grew 46% from the year-ago quarter to $720 million.

Cash App delivered a 34% decline in Bitcoin revenue from the year-ago quarter to $1.79 billion. The decline was driven by a decline in consumer demand and bitcoin price, given the uncertainty around crypto assets.

Corporate and Tidal, which primarily includes Tidal, generated $57 million in revenue and $9 million in gross profit.

Block exited the second quarter with $6.8 billion in available liquidity and $6.2 billion in cash and cash equivalents, restricted cash, and investments in marketable debt securities.

Management’s Q3 Expectations

Management expects Cash App and Square ecosystems to help customers adapt and grow based on trends.  However it projects gross payment volume in the Square ecosystem to increase 18%  in July from the year ago period  down from a 29% increase registered in April from the year-ago period.

The company also plans to be more disciplined with investments. In the third quarter, the company expects non-GAAP operating expenses to increase by about $75 million compared to the second quarter. Block also expects share-based compensation to increase modestly.

Final Thoughts

The second quarter report affirms how exposed Block is to volatility in the cryptocurrency sector after a 34% decline in Bitcoin revenue. Revenue and earnings drop raises serious concerns about growth as GPV growth also shows signs of weakness.

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