Payments company Block (SQ) reported Q4 results after Thursday’s close, prompting mixed views from Wall Street that sent shares down 2% in the minutes following the earnings announcement.
The outlook, however, quickly changed during the call.
At first, top line revenue and gross profits beat the Street’s expectations, but the bottom line missed, which longtime Block watcher Mizuho Securities analyst Dan Dolev told Yahoo Finance was “uneventful” just after the release.
But during Block’s earnings call, the stock changed course as the company revealed its 2023 guidance, tipping Wall Street’s view in favor of the company. Block stock rose as much as 8% after hours Thursday and is up more than 3% Friday, trading above $76. (The stock has still has fallen more than 13% over the past year.)
“We want to further raise the bar on our growth rates and our efficiency,” Block co-founder and CEO Jack Dorsey said. “This is an ambitious goal, especially at our scale, and one we aren’t meeting today,” he added.
Dorsey went on to lay out the company’s three-part investment plan going into 2023. Block wants to improve profitability and expense control by moving the firm’s accounting from adjusted EBITDA to adjusted operating income.
In short, the accounting change means the company will now include many costs it previously ignored such as amortization, depreciation and stock-based compensation.
Block CFO Amrita Ahuja added that Block is expecting improved growth over the first quarter. On an as reported basis, the company has increased gross profit for January and February by 25% since the previous year.
Management said little about the company’s bitcoin revenue though Dorsey added that he expects TBD, company’s fledgling decentralized communication protocol, “to be disruptive to what we’re currently doing within Cash App.”
Starting with point of sale solution Square, which launched in 2010, Block’s business model aims to be “an ecosystem of ecosystems.” It has massively scaled two of those ecosystems — Square and the newer consumer-facing Cash App — but after seeing substantial growth through the 2021, Square’s gross profit is beginning to lag.
Payment volumes for flagship business Square dropped 3% from the third quarter, showing “slowing consumer spending, macro weakness” according to D.A. Davidson’s Chris Brendler. Q4 results also showed Cash App outmatched Square’s gross profit for the first time since early 2021.
Block revenue and gross profit came in slightly above expectations, $4.65 billion and $1.66 billion against Wall Street’s expected $4.57 billion and $1.63 billion.
The company also reported adjusted EBITDA, the go-to indicator for newer tech companies working towards profitability, that outmatched the consensus view by $58 million.
“For years, we’ve viewed SQ as a vastly superior franchise led by one of the best management teams we’ve ever covered, but 2022 was more mixed,” said D.A. Davidson’s Brendler, who reiterated a Buy rating with a $130 price target for Block.
“With this business improving and Cash App continuing to drive incredible organic growth, SQ is once again distancing itself from peers,” he added.
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
Source: https://finance.yahoo.com/news/block-to-raise-the-bar-in-2023-ceo-jack-dorsey-says-193120744.html