Block Pares Gains as Solid Earnings Fail to Wow Investors

Block, parent of Square, posted adjusted earnings and revenue that missed consensus estimates, though other second-quarter metrics were encouraging. (Courtesy Square)

Shares of Block, the parent of Square and Cash App, popped after the company reported second-quarter results after the closing bell Thursday. However, the stock quickly pared those gains.

At first glance, there was a lot to love about Block’s second-quarter print. Gross profit, a key performance indicator, rose 14% to $2.54 billion in the quarter, beating the $2.46 billion consensus estimate among analysts polled by FactSet.

The fintech saw growth across its business segments as well. Point-of-sale system Square logged gross profit of $1.03 billion, roughly in line with estimates and representing 11% growth year over year. Gross profit at Cash App, meanwhile, climbed 16% to $1.5 billion, topping the $1.44 billion Wall Street was looking for.

Block also boosted its full-year outlook. The company now expects $10.17 billion in gross profit, up from $9.96 billion. Management also guided for adjusted operating income of $2.03 billion, compared with a previous forecast for $1.9 billion.

While shares initially rose in after-hours trading Thursday following the report, they backtracked and fell 3% to $74.56 on Friday. It could be that Block’s latest results, while encouraging, simply failed to meet lofty expectations.

Adjusted earnings of 62 cents a share narrowly missed the 63 cents analysts had projected, according to FactSet. More notably, net revenue fell 1.6% to $6.054 billion and came in below the $6.297 billion Wall Street was anticipating.

While it’s possible that the stock simply rose too high before reversing course, the market reaction also follows a pattern. In the case of peers, less-than-perfect prints triggered steep declines. Shares of Fiserv and Toast, two point-of-sale providers, fell on the heels of their most recent quarterly earnings, with Fiserv cratering double-digits.

In Block’s annual shareholder letter, CEO Jack Dorsey asserted that the company was “back on offense” after its latest quarter. “I’m confident in our ability to sustain strong growth at scale,” the Twitter co-founder asserted.

Something else stood out—Dorsey’s emphasis on cryptocurrency. “The next generation of consumers has a different relationship with money and wants the option to use bitcoin and other forms of payment as part of their financial lives,” Dorsey wrote.

He noted that Cash App had recently increased withdrawal limits for Bitcoin, and that Square had showcased the ability for sellers to accept the cryptocurrency in May. “Our longstanding investment in bitcoin as a technology protocol represents a slow and steady conviction in a new open, decentralized paradigm for payments that doesn’t rely on gatekeepers,” Dorsey continued.

The attitude is reminiscent of another player in the fintech space. When Barron’s spoke to SoFi Technologies CEO Anthony Noto last week, he, similarly, stressed SoFi’s pivot to crypto, and laid out steps the company had taken to embrace Bitcoin and other digital currencies.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com