Block Inc. Surprise Profit Quarter

A Lean Focus Pays Off

Block Inc. has been diligently working on becoming leaner, and their efforts have proven successful in the latest quarter as the Square parent company reported a surprising profit.

Positive Growth

Shares surged over 7% in Thursday's extended session following the news.

The company recorded a fourth-quarter net income of $10 million, or 2 cents per share. This is a significant improvement compared to the loss of $541 million, or 93 cents per share, in the same period last year. Analysts were anticipating a loss of 1 cent per share, making this a notable achievement.

Adjusted Earnings

On an adjusted basis, Block earned 45 cents a share - slightly below the FactSet consensus of 58 cents per share. However, the company also exceeded expectations with $562 million in adjusted earnings before interest, taxes, and depreciation (Ebitda) compared to the consensus view of $448 million.

Growth Strategies

Chief Financial Officer Amrita Ahuja attributed this success to continued growth across both Square and Cash App ecosystems. The company has been focusing on efficiency improvements, including job cuts that have reduced the headcount to below 12,000 employees.

Refocused Strategy

Block is realigning its strategy for both sides of the business. The recent quarter's shareholder letter shifted the spotlight to Cash App, highlighting a goal to expand banking services for customers.

"We believe we have an opportunity to drive and create primary banking relationships with these customers," Ahuja stated. The introduction of the Cash App debit card earlier in the onboarding process is seen as a gateway to encourage users to explore additional banking services offered by the company.

Strategic Priorities

Receiving direct deposits from consumers is a priority for many financial services companies, and it is no different for Block. The company is focused on securing these relationships as they continue to refine their strategies for sustained growth.

Square's Cash App Continues to Thrive

Customer Engagement Boosted by Paycheck Deposits

Square's Cash App has seen a significant increase in value and engagement as customers opt to deposit their paychecks with the platform. According to the shareholder letter, Cash App Card users who deposit at least $2,000 per month spend nearly 6 times more than those who do not.

Impressive Growth Metrics

In December, the Cash App boasted 56 million monthly transacting active users, marking a 9% increase from the previous year. Total inflows for the fourth quarter reached $63 billion, up 18% year-over-year and 2% sequentially.

Financial Performance Highlights

The Cash App delivered a gross profit of $1.18 billion, a 25% increase from the prior year. Analysts focus on gross profit rather than revenue for Block's business due to its substantial bitcoin revenue, which carries minimal margin and can obscure growth trends elsewhere.

The Square seller business also saw strong performance, with a fourth-quarter gross profit of $828 million, up 18%.

Future Projections

Looking ahead to the first quarter, Block anticipates $2.00 billion to $2.02 billion in gross profit, slightly exceeding analyst projections. Additionally, the company forecasts adjusted Ebitda between $570 million and $590 million, surpassing the consensus view.

For the full year, Block aims for at least $8.65 billion in gross profit and at least $2.63 billion in adjusted Ebitda. The outlook remains positive, contingent on avoiding further macroeconomic challenges.

Square's Cash App continues to thrive, driven by strong financial performance and robust customer engagement strategies.