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Earnings Results: Square stock rockets higher after earnings outlook calls for improving growth as 2022 goes on

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Block Inc. rocketed higher in after-hours trading Thursday after the financial-technology company formerly known as Square offered some upbeat commentary for the year ahead.

While shares had been down in after-hours trading following Block’s
SQ,
+7.07%

December-quarter earnings release, the stock turned around in a big way after Chief Financial Officer Amrita Ahuja offered some forward-looking views on the company’s earnings call. The stock was up more than 22% in aftermarket trading at the end of the call.

Ahuja shared that Block saw some moderation in gross-profit growth during January due to the omicron variant, but growth improved in February, and Block expects improvement in the two-year compound annual growth rate during March.

Additionally, the company anticipates a stronger gross-profit growth rate in the second half of the year versus the first half, and it expects that it will sequentially grow gross profit each quarter of 2022 in both its Cash App and Square seller businesses, assuming that macro conditions stay stable.

Ahuja cited the potential for new products and pricing adjustments, and said that Block expects to face easier comparisons as the year goes on.

Square changed its corporate name to Block in December, with the view that the new name better reflects the company’s expanding domain, which includes its original merchant business, the Cash App mobile wallet, the Tidal streaming service, and various crypto-related efforts. The merchant business is retaining the Square brand name.

The company’s Square seller business generated a fourth-quarter gross profit of $657 million, while its Cash App business saw gross profit of $518 million. Analysts tracked by FactSet were anticipating $631 million in seller gross profit and $503 million in Cash App gross profit.

“Despite a roll off in government disbursements in the fourth quarter, we saw strength in recurring paycheck deposits, which we view as a key barometer of customers using Cash App for their primary banking needs,” the company said in its shareholder letter.

One opportunity for Block is its recent launch of Cash App’s free tax-filing service. Ahuja shared on a call with reporters that Block has been focused on simplifying the process of filing taxes and sees the offering as a way to get customers to think of Cash App as their “preferred banking platform.”

The company had more than 44 million monthly active transacting users on Cash App during the month of December. Wolfe Research analyst Darrin Peller wrote that he had been expecting 43 million.

Block’s overall gross profit rose to $1.18 billion from $804 million a year earlier, while analysts had been modeling $1.16 billion. Analysts view gross profit as a key metric for Square as it accounts for the fact that some elements of Block’s business, such as the bitcoin-trading feature in the Cash App mobile wallet, are fairly low-margin.

Bitcoin
BTCUSD,
+0.49%

gross profit was $46 million in the latest quarter, just 2% of bitcoin revenue.

The company posted a net loss of $77 million, or 17 cents a share, whereas it generated net income of $294 million, or 59 cents a share, in the year-prior quarter. After adjusting for stock-based compensation and other expenses, Block earned 27 cents a share, down from 32 cents a share a year earlier but above the FactSet consensus, which was for 23 cents a share.

Block generated overall revenue of $4.08 billion, up from $3.16 billion a year ago and above the $4.04 billion that analysts tracked by FactSet had been anticipating. The company saw $1.31 billion in transaction-based revenue, $772 million in subscription and services revenue, $36 million in hardware revenue and $1.96 billion in bitcoin revenue.

Block generated gross payment volume of $46.3 billion in the fourth quarter, up from $32 billion in the year-prior quarter. The latest total matched the FactSet consensus.

“Overall, we thought the 4Q print was positive given the out-performance across both Cash App and Seller and an MAU [monthly active user] number ahead of expectations,” Wolfe’s Peller wrote.

Shares of Block have declined 56% over the past three months as the S&P 500
SPX,
+1.50%

has lost about 9%.

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