Block Inc. upped its profit forecast for the year, but shares were falling in after-hours action Thursday after management indicated a July slowdown on a key metric.
The payment-technology company that houses the Square and Cash App businesses reported upbeat profit metrics for its most recent quarter while also disclosing that it now expects to book positive adjusted operating income for the full year.
Block reported net income of $123 million, or 20 cents a share, for the June quarter, whereas it lost $208 million, or 36 cents a share, in the year-earlier period. On an adjusted basis, the company logged earnings per share of 39 cents, while analysts tracked by FactSet had been modeling 36 cents.
The company also recorded adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of $384 million, ahead of the $297 million that analysts were modeling.
Block now anticipates $1.5 billion in full-year adjusted Ebitda along with $25 million in adjusted operating income, whereas it previously forecast $1.36 billion in adjusted Ebitda and an $115 million in adjusted operating loss.
Chief Financial Officer Amrita Ahuja said that Block was boosting its outlook by more than the value of the second-quarter beat as the latest results showed that the company is “balancing both growth and efficiency in a very strong way.”
She called out efficiency benefits related to hiring, sales and marketing expenses and to corporate overhead. On hiring, for instance, Block’s shift toward the adjusted-operating-income metric includes share-based compensation and thus shows hiring managers the full cost of their personnel.
“Ultimately, because of that, we expect to see slower hiring,” she said.
Block also topped expectations on gross profit, seen as a proxy for revenue given that the true top-line figure includes items like bitcoin-trading revenue that carry minimal margin. Gross profit came in at $1.87 billion for the second quarter, up 27% from a year before, while analysts were modeling $1.81 billion.
However, the company indicated that gross profit growth slowed to 21% in July, with this deceleration “likely [to] be a key controversy,” according to Mizuho analyst Dan Dolev.
Second-quarter gross profit for the Cash App mobile wallet was $986 million, up 37% from a year before, while gross profit for the Square seller business rose 18% to $888 million.
Ahuja cited strength on users, inflows and monetization within the Cash App business, as the service had 54 million monthly transacting actives in the month of June, up 15% from a year earlier.
“This is where we see the effect of our peer-to-peer attributes,” which have helped Block “efficiently” grow its customer base, Ahuja said. Further, Block sees better retention of users who themselves interact with a larger network of other customers.
Inflows per active account were “relatively stable” sequentially, according to Ahuja, despite benefits from tax refunds in the first quarter.
Within the Square seller business, she pointed to a general stability in gross-payment-volume trends from May to July.
“We’re very watchful” with the “ability to react to potential macro-related impacts in real time,” Ahuja said.
Block expects that overall gross profit grew 21% in July, the company stated in its earnings materials.
