Block's (SQ) Q4 Earnings Miss Estimates, Revenues Up Y/Y
Block SQ reported fourth-quarter 2022 adjusted earnings of 22 cents per share, missing the Zacks Consensus Estimate by 21.4%. The figure declined 18.5% year over year.
Net revenues of $4.65 billion surpassed the Zacks Consensus Estimate of $4.53 billion. The top line increased by 14% from the prior-year quarter.
Year-over-year revenue growth was driven by strong momentum across the Cash App ecosystem, which contributed $2.86 billion to net revenues for the reported quarter, up 12% year over year.
Block witnessed solid traction across the Square ecosystem, generating $1.76 billion of net revenues, up 19% year over year.
The company’s Corporate & Other — comprising the global music and entertainment platform TIDAL — generated $38 million in net revenues for the fourth quarter.
Further, Block witnessed strong growth in transaction and subscription revenues.
The growing momentum across the buy now, pay later (BNPL) platform generated $264 million in revenues in the reported quarter.
Additionally, accelerating gross payment volume (GPV) drove the results.
However, bitcoin volatility remained a concern for the company.
Block, Inc. Price, Consensus and EPS Surprise
Block, Inc. price-consensus-eps-surprise-chart | Block, Inc. Quote
GPV
GPV in the fourth quarter amounted to $53.2 billion, up 15% from the year-ago quarter. This was driven by strength across the Square ecosystem. Notably, Square’s GPV was $48.6 billion (accounted for 91% of the total GPV) in the fourth quarter, up 14% year over year.
Cash App, which accounted for $4.55 billion of the overall GPV (9%), remained positive. The figure increased by 20% year over year.
Block continued to experience improvement in its card-present volumes in the reported quarter. Card-present GPV was up 17% from the year-ago quarter.
The company’s card-not-present GPV reflected year-over-year growth of 9% in the fourth quarter.
Top Line Details
Transaction (31.7% of net revenues): The company generated transaction revenues of $1.47 billion, up 13% year over year. Strong Square ecosystem accounted for $1.35 billion of transaction revenues, up 12% year over year. Further, Cash App contributed $122 million to transaction revenues, up 18% year over year, owing to the rising number of transactions as well as business accounts.
Subscription and Services (28.1% of net revenues): The company generated $1.31 billion in revenues from this category, jumping 69% from the year-ago quarter. The improvement can be attributed to a strong performance by the Square ecosystem, which contributed $368 million to subscription and services revenues, up 60% year over year. Further, Cash App contributed $901 million to the category’s top line. The figure was up 85% from the year-ago quarter. Moreover, a well-performing BNPL platform contributed well.
Hardware (0.8% of net revenues): Block generated revenues of $36 million from the business, down 1% year over year.
Bitcoin (39.4% of net revenues): The company generated revenues of $1.83 billion from the category, down 6.5% year over year. This was attributed to sluggish consumer demand and a slowdown in trading activities due to declining bitcoin prices.
Operating Details
Per management, gross profit grew 40% from the year-ago quarter to $1.66 billion. The gross margin expanded by 680 basis points (bps) year over year to 35.7%.
Adjusted EBITDA was $281 million in the reported quarter, up 52.7% year over year.
Operating expenses were $1.8 billion, rising 45% from the prior-year quarter.
Product development expenses were $605 million, up 54% year over year, primarily due to rising headcount and personnel costs in the engineering, data science and design teams. Also, product development expenses associated with the BNPL platform led to the surge.
General and administrative expenses were $450 million, up 51% from the prior-year quarter. This was primarily caused by finance, legal, human resources and support personnel costs and expenses associated with the BNPL platform.
Sales and marketing costs were $540 million, up 11% year over year due to an increase in Cash App peer-to-peer processing costs.
The adjusted operating loss was $31.9 million in the reported quarter compared with $22.6 million in the year-ago quarter.
Balance Sheet
As of Dec 31, 2022, the cash and cash equivalent balance was $4.54 billion, up from $4.33 billion on Sep 30, 2022.
Short-term investments were $1.08 billion for the reported quarter, up from $1.05 billion in the previous quarter.
Long-term debt was $4.109 billion compared with $4.107 billion in the prior quarter.
Zacks Rank & Stocks to Consider
Currently, Block has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader Zacks Computer & Technology sector are Arista Networks ANET, Baidu BIDU and Agilent Technologies A. While Arista Networks and Baidu sport a Zacks Rank #1 (Strong Buy), Agilent Technologies carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arista Networks has gained 6.1% in the past year. The long-term earnings growth rate for ANET is currently projected at 17.5%.
Baidu has lost 7.1% in the past year. The long-term earnings growth rate for BIDU is currently projected at 19.4%.
Agilent has gained 8.4% in the past year. A’s long-term earnings growth rate is currently projected at 10%.
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