Frozen shares drop after earnings, as Square’s parent company swings in loss

Block Inc. shares fell. It fell 7% in after-hours trading Thursday after the payment technology company turned a loss on an earnings report that appeared to cause some debate over whether the company actually beat expectations or missed several key metrics.

SQ block,
+ 1.85%And the
Which Somewhat recently changed the company name from Square, reported a net loss of $208.0 million, or 36 cents a share, while it reported net income of $204.0 million, or 40 cents a share, in the same period a year earlier. On an adjusted basis, Block earned 18 cents a share, down from 49 cents a share the year before, while analysts were modeling 16 cents a share.

Block revenue fell to $4.40 billion from $4.68 billion, reflecting a sharp drop in Bitcoin BTCUSD,
+ 0.74%
contributions in the last quarter. Bitcoin revenue fell 34% to $1.79 billion in the second quarter.

Read: These companies jumped on the crypto train when times were booming. Which are exposed in the economic downturn?

Analysts tracked by FactSet forecast total revenue of $4.33 billion for the quarter.

While bitcoin trading generates significant revenue for Block, it comes with little profit, which is one of the reasons why company executives and analysts who cover stocks tend to view Block’s total gross earnings as a proxy for revenue.

“The gross profit exemplifies what we take from bitcoin sales, which is why you see more consistent trends on a gross profit relative to revenue basis,” CFO Amrita Adoga told reporters in a media call following the report.

Gross profit came in at $1.47 billion for the fourth quarter, up from $1.14 billion a year earlier, while analysts had expected $1.48 billion. Excluding buy-now and pay-later contributions related to the company’s recent acquisition of Afterpay, Block totaled $1.32 billion.

Total payments were $52.5 billion, up from $42.8 billion in the previous year, but below the consensus of FactSet, which was $53.2 billion.

Block generated $755 million in gross revenue for Square’s seller business, above the consensus of FactSet, which called for $735 million. Excluding BNPL, the segment’s gross profit was $681 million.

While the GPV of the company’s Square business grew 25% year-over-year in the second quarter, the company expects 18% growth on the metric for July.

The company’s cash app business saw gross profit of $705 million, up from $546 million in the previous year. Analysts tracked by FactSet were netting $678 million. Cash App gross profit for the fourth quarter was $630 million when excluding the effects of BNPL.

While Block appeared to beat FactSet consensus expectations with its Cash App and Square gross earnings numbers, analysts appeared to have different views on whether or not the company actually exceeded expectations. This likely has something to do with whether or not the effects of BNPL are included in the consensus numbers, and whether analysts are generally consistent about whether or not to include BNPL in their estimates – two factors not immediately clear in looking at the FactSet numbers.

Wedbush analyst Moshe Katri wrote in an email that “The second consecutive quarter missing gross earnings (CashApp and Square/merchants) as well as GPV likely reflects the consumer/merchant profile of SQ’s end market, which is struggling during the current high inflation environment.” “. “We also believe this will continue to fuel investor concerns about SQ’s competitive position versus the likes of FISV’s FISV,”
-1.40%
Clover as well as Adyen’s ADYEN,
+ 0.86%
Ongoing efforts to expand into the US SMB [small- and medium-business] outer space.”

Meanwhile, Daniel Berlin, an analyst at RBC Capital Markets, noted that Block exceeded its expectations for Square’s business but failed to implement the Cash App. Trevor Williams, an analyst at Jefferies, said Block beat Street to the Cash app, but came in shy with Square’s business, while ruling out the effects of Afterpay as well as the effects of the Paycheck Protection Program on the seller’s business.

In a letter to the company’s shareholders, executives offered that they expect Cash App’s total revenue to grow year-over-year in July, “driven by growth in monthly transaction activity, engagement across our ecosystem, and flows to Cash.”

Ahuja told reporters that Block continues to “see strong growth here, particularly in the breadth of the ecosystem and the overall amount of inflows.”

She said on the company’s earnings call website.

See also: Cash App Users Can Now Invest In Stocks And Bitcoin With Excess Change

Mizuho analyst Dan Dolev described the results as “somewhat disappointing,” adding that “block fans who used to win and raise in previous years are likely to be disappointed — hence the negative reaction to the stock.”

Block shares have lost about two-thirds of their value in the past 12 months, as have the S&P 500 SPX,
-0.08%
It has decreased by about 6%.