$Block(SQ)$ has released its financial report for Q3 2022. The great improvement of gross profit was mainly from Cash App (+51% yoy), Square too reported a quite good increase (+29% yoy) of gross profit. The Buy Now Pay Later (BNPL) platform, the Afterpay has contributed positively to the gross profit growth. Excluding the BNPL platform, Cash App gross profit was $700 million (+37% yoy), Square gross profit was $708 million (+17% yoy).
The management estimates Cash App gross profit growth, excluding BNPL platform, improved on a year-over-year basis compared to 37% in the third quarter. While for Square, the management was expecting flattish gross profit growth (19% yoy, exclude BNPL and PPP in Q3 2022) due to the $59 million of nonrecurring PPP gross profit recognized in Q4 2021.
We can see there are a few efforts from Block to improve Cash App Ecosystem and increase the Cash App gross profit. Stated in the Q3 2022 sharedholder letter, Block made notable progress on the Community, Financial Services, and Commerce fronts, which meaningfully contributed to gross profit growth.
Community or peer-to-peer network is very important to Cash App. We can consider the expanding network will promote more transacting actives. Other than targeted marketing to help expand the community, Block has integrated financial service to the app to make it more sticky to user.
Commerce is about consumer (Cash App) and seller (Square) ecosystems. Block connects the two via Afterpay and has meaning progress on the integration. Block is aiming to transform Cash App into a shopping destination as they rolled out Discover which helps consumers to find people, business or offers.
On Square ecosystems, Block introduced a few purpose-built software which has helped to improve Square gross profit very much as highlighted in the Q3 2022 financial report.
“Our software point-of-sale solutions are purpose-built for specific verticals and have experienced strong growth: In the third quarter, Square for Restaurants, Square for Retail, and Square Appointments cumulatively grew gross profit more than 45% year over year.”
The launch of Apple’s Tap to pay is good as Block’s hardware actually generated gross loss of $33 million as they use hardware as an acquisition tool.
Lastly, as in recent news, many companies had frozen the hiring or started laying off. In order to operate more efficiently, Block expects to significantly moderate the pace of hiring and pull back on lower ROI, more experimental areas. Hopefully we will soon see these efforts channel into profit.
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