Block, Inc. (NYSE: $SQ) is a fintech company offering digital payment solutions. Its main products are the Square point-of-sale app and hardware for merchants and the P2P payment service Cash App. Previously called Square Inc., the company changed its name to Block, Inc. in December 2021 when it acquired the buy-now-pay-later firm Afterpay. Block aims to facilitate seamless mobile payments and financial services.
On May 02, 2024, Block announced its first-quarter 2024 financial results, surpassed analysts’ expectations.
Block’s Q1 2024 Financial Performance
The company reported a net revenue of $5.957 billion, a robust 19.38% increase from the previous year’s $4.99 billion and higher than the consensus estimate of $5.821 billion.
The company’s profitability soared, with adjusted earnings per share at 85 cents, outperforming the consensus estimate of 72 cents. Gross profit increased significantly by 22% year-over-year, reaching $2.09 billion.
Block reported a net income of $472 million, or 74 cents per share, a significant increase from the $98.3 million, or 16 cents per share, reported a year earlier. Adjusted EBITDA doubled to $705 million, while adjusted operating income surged sevenfold to $364 million compared to the previous year. In March, the company generated $1.1 billion in adjusted free cash flow, more than 2.5 times higher than the previous year.
Block’s Fintech Domination: Cash App, Square
The Cash App business, Block’s mobile payment platform, was a standout performer, contributing $1.26 billion in gross profit, a 25% jump from the previous year. The Cash App Card’s monthly active users rose to 24 million in March.
Block’s Square segment, which caters to merchants and sellers, also delivered impressive results. Square generated a gross profit of $820 million, marking a 19% increase year over year. The company’s gross payment volume reached $54.43 billion, indicating substantial transactional activity across its platforms.
Block concluded the year with 57 million monthly transacting actives, showing a 6% year-over-year growth. Moreover, the inflows per transacting active surged to $1,255, indicating an 11% increase from the previous year.
Raised Full-Year 2024 Guidance
Block has revised its full-year 2024 forecast, projecting a gross profit of at least $8.78 billion, a 17% increase compared to the previous year. The company foresees a slight deceleration in Cash App’s gross profit growth from the initial quarter’s 25%, while Square’s gross profit growth is expected to moderate from the first quarter’s 19%.
Block also expects an adjusted operating income of no less than $1.3 billion. Additionally, the updated forecast for adjusted core earnings is now set at a minimum of $2.76 billion, surpassing their earlier estimate of $2.63 billion.
Strategic Investment in Bitcoin
In a bold move, Block announced a strategic investment in Bitcoin, citing several favorable developments within the company and the overall market. In April, Block initiated a Bitcoin dollar cost average (DCA) purchase program running until 2024, with 10% of their Bitcoin product gross profits going into Bitcoin purchases. The company anticipates adding $24 million worth of bitcoin to their balance sheet by year-end through this initiative.
Jack Dorsey, Block’s CEO, stated, “We believe the world needs an open protocol for money, one that’s not owned or controlled by any single entity. We were one of the first public companies to put bitcoin on our balance sheet: we invested $220 million into bitcoin, and that investment has grown by approximately 160% to $573 million as of the end of the first quarter.”
Block Faces Regulatory Scrutiny Amid Allegations
However, the company faces potential challenges as federal prosecutors reportedly investigate Block for alleged widespread and yearslong compliance lapses at its two main units, Square and Cash App. According to an NBC news report, many transactions involving credit card transactions, dollar transfers, and bitcoin were not reported to the government as required.
If the probe yields penalties for Block, Macquarie analyst Paul Golding remarked, “We see more potential for fines and/or behavioral remedies like more robust oversight teams/infrastructure, as opposed to something structural like limitations on the types of business it (Block) can do.”
Furthermore, short-seller Hindenburg Research alleged last year that Block had inflated Cash App user metrics and facilitated fraud, describing the company’s internal systems as a “‘Wild West’ approach to compliance.”
Block (SQ) Stock Performance
On Thursday, May 2, shares of Block (SQ) closed at $70.30, a 5.18% increase from the previous closing price of $66.84. Following the company’s first-quarter earnings announcement, this surge followed a notable uptick of over 6% in extended trading. On Friday, SQ shares lost some of their gains, closing 1.18% lower at $69.47 per share.
Over the past year, the stock has grown 18.65%, while its year-to-date change stands at -9.11%. Notably, SQ closed its trading session below its 52-week high of $87.52 and 9.28% below its 50-day moving average of $77.49, with a market capitalization of $43.47 billion. As of April 15, 2024, short interest in SQ amounted to 12.59 million shares, showing a decrease of 4.51% and constituting 2.32% of the float.
Analysts Bullish on SQ: Strong Buy
Wall Street analysts are optimistic about SQ stock, recommending it as a “strong buy.” Their average price target is $90.42, with a high forecast of $100.00 and a low forecast of $62.00. This average target suggests a potential increase of 28.62% compared to the current price of $70.30. Analysts anticipate SQ’s performance will align with the broader market in the near term.
Should You Buy Block (SQ) Stock?
Block’s first-quarter 2024 financials exceeded expectations, fueled by the impressive performance of Cash App and Square. The company’s strategic Bitcoin investment underscores its commitment to cryptocurrency. However, the company faces regulatory scrutiny and allegations of compliance lapses, potentially impacting its future operations.
Despite these concerns, analysts maintain a bullish outlook, recommending Block as a “strong buy” with significant upside potential. As the fintech disruptor navigates regulatory headwinds, its innovative platforms position it for continued growth in the dynamic digital payments landscape.
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