Block Inc. delivered impressive financial results for the third quarter and revealed a bold earnings goal for 2024 that far surpasses market expectations.
Strong Q3 Performance
Despite a net loss of $29.0 million, or 5 cents per share, Block SQ, +7.37% showcased its resilience by achieving an adjusted profit of 55 cents per share. This is a notable increase from the previous year’s 47 cents per share and exceeded the average estimate of 47 cents per share, according to analysts surveyed by FactSet.
Block’s revenue soared to $5.6 billion, surpassing the anticipated $5.4 billion consensus determined by FactSet. The company’s ability to consistently deliver on revenue growth is underscored by its gross profit of $1.90 billion, which aligns closely with FactSet’s forecast.
Stellar Performance of Square Seller Business
Block witnessed remarkable success in its Square seller business, generating a gross profit of $899 million, representing a 15% increase from the prior year. Furthermore, Cash App gross profit experienced substantial growth, surging by 27% to $984 million.
Impressive Metrics for Cash App
The Cash App mobile-wallet delivered outstanding results across key metrics during the quarter. Notably, the company witnessed an 11% increase in monthly transacting active users, reaching 55 million in September. Inflows per transacting active user also saw a healthy rise of 8%, amounting to $1,132 during Q3.
New Priorities Outlined by CEO Jack Dorsey
As recently announced, CEO Jack Dorsey has assumed leadership of the Square seller business and revealed his strategic priorities for the segment. These priorities include focusing on localized product offerings, leveraging artificial intelligence, and strengthening the company’s banking products.
Targeting Upmarket Businesses
With a renewed focus on localized go-to-market strategies, Block aims to better reach upmarket businesses, particularly within the food and beverage sector. Chief Financial Officer Amrita Ahuja emphasized the inherent local nature of restaurants and outlined Block’s plans to cater to this market effectively.
Block’s impressive performance and ambitious goals have drawn the attention of investors, driving a 7% surge in after-hours trading.
Square’s Use of AI and Growth Outlook
Square, the financial services company, is embracing AI technology to enhance its operations. One notable application of AI is menu generation for sellers. Moreover, Square aims to integrate AI into its engineering processes to increase efficiency.
In terms of financial forecasts, Block projects a gross profit of $1.96 billion to $1.98 billion for the fourth quarter, slightly below analysts’ expectations of $1.98 billion. The company also anticipates adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $430 million to $450 million, surpassing the FactSet consensus of $393 million.
Furthermore, the preliminary outlook for adjusted EBITDA in 2024 is optimistic, with Block projecting $2.4 billion, while analysts predicted $1.94 billion.
Block has set its sights on achieving meaningful margin expansion in the coming year, progressing towards its “Rule of 40” target. The “Rule of 40” represents the combination of gross-profit growth and adjusted-operating-income margin. Although the target is to be reached by 2026, significant advancements are expected in the next calendar year.
To bolster its operational efficiency, Block plans to exercise greater expense discipline in several areas. The company aims to limit its employee count to 12,000 by the end of 2024, necessitating the implementation of various approaches such as improved performance management, a more stringent product roadmap, and team restructuring.
According to Ahuja, some teams within Block may experience growth while others may undergo downsizing.
Additionally, Block will carefully consider its corporate overhead by evaluating its real-estate footprint. Moreover, the company aims to enhance its variable cost structure for better optimization.