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Block (SQ) Q3 Earnings Surpass Estimates, Revenues Rise Y/Y

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Block Inc. (SQ - Free Report) reported third-quarter 2022 adjusted earnings of 42 cents per share, which beat the Zacks Consensus Estimate by 82.6%. The bottom line increased 13.5% year over year and 133.3%, sequentially.

Net revenues of $4.52 billion surpassed the Zacks Consensus Estimate by 0.9%. Further, the figure increased 17.4% and 2.5%, respectively, from the prior-year quarter and the previous quarter’s level each.

Year-over-year revenue growth was driven by strong momentum across the Cash App ecosystem, which led to the contribution of $2.68 billion (59% of total revenues) to net revenues for the reported quarter, up 12.2% year over year.

Block witnessed solid traction across the Square ecosystem, generating $1.77 billion of revenues (39% of total revenues), up 8.4% year over year.

SQ’s Corporate & Other — comprising the global music and entertainment platform TIDAL — generated $56 million (4% of total revenues) of net revenues for the third quarter.

In the third quarter, Block witnessed strong growth in transaction, subscription and hardware revenues.

The growing momentum across the buy now, pay later (BNPL) platform generated $210 million of revenues, rising 6% on a year-over-year basis.

Additionally, accelerating gross payment volume (GPV) drove the results.

Block, Inc. Price, Consensus and EPS Surprise

Block, Inc. Price, Consensus and EPS Surprise

Block, Inc. price-consensus-eps-surprise-chart | Block, Inc. Quote

Gross Payment Volume

GPV for the third quarter amounted to $54.4 billion, up 19.7% from the year-ago period’s level. This was driven by strength across the Square ecosystem. Square GPV accounted for 92% of the total GPV for the reported quarter. Square GPV was up 20% year over year.

Strong performance of the Cash App, accounting for $4.3 billion of the overall GPV (8%), remained a positive. The figure increased 15.9% year over year. Growing Cash App card monthly actives remained a positive.

Block continued to experience an improvement in card-present and card-not-present volumes in the reported quarter. Card-present GPV was up 23% from the year-ago quarter. Card-not-present GPV witnessed year-over-year growth of 14% for the third quarter.

Top-Line Details

Transaction (34% of net revenues): Block generated transaction revenues of $1.52 billion, up 17% year over year. Strong Square ecosystem accounted for $1.40 billion of transaction revenues, up 17.2% year over year. Robust performance of the Cash App contributed $118.5 million to transaction revenues, up 14.8% year over year owing to the rising number of transactions as well as business accounts.

Subscription and Services (26% of revenues): SQ generated $1.19 billion of revenues from the category, jumping 71.5% from the year-ago quarter’s level. The improvement can be attributed to a strong performance by the Cash App, which contributed $803.7 million to the top line. The figure was up 69.3% from the year-ago quarter’s reading. Square ecosystem contributed $331.7 million to subscription and services revenues, up 104.3% year over year.

Hardware (1% of revenues): Square generated revenues of $43.4 million from the business, up 16.5% year over year. This was driven by strong unit sales of Square Terminal and Square Reader for contactless and chip.

Bitcoin (39% of revenues): Block generated revenues of $1.76 billion from the category, down 2.9% year over year. The decline in bitcoin revenues was driven by a fall in consumer demand and the price of bitcoin.

Operating Details

Per management, gross profit grew 38% from the year-ago quarter’s level to $1.57 billion. Further, gross margin expanded 523 basis points (bps) year over year to 34.7%.

Adjusted EBITDA was $327 million for the reported quarter, up 40.3% year over year.

Non-GAAP operating expenses were $1.26 billion, rising 39% from the prior-year quarter’s level.

Product development expenses were $331 million, up 54% year over year, primarily due to rising headcount, expenses related to the BNPL platform, and personnel costs in engineering, data science and design teams.

General and administrative expenses were $312 million, up 35% from the prior-year quarter’s level. This was primarily caused by finance, legal, compliance and support personnel costs, and expenses associated with the BNPL platform.

Sales and marketing costs were $456 million, up 16% year over year due to an increase in Cash App marketing expenses and marketing expenses related to the BNPL platform and TIDAL.

Block incurred an operating loss of $15 million in the third quarter.

Balance Sheet

As of Sep 30, 2022, the cash and cash equivalent balance was $4.33 billion, up from $4.02 billion on Jun 30, 2022.

Short-term investments were $1.05 billion for the reported quarter, up from $938.99 million in the previous quarter.

Long-term debt was $4.11 billion compared with $4.10 billion in the prior quarter.

Zacks Rank & Stocks to Consider

Currently, Block has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Business Services sector are Automatic Data Processing (ADP - Free Report) , EXL Service (EXLS - Free Report) and Insperity (NSP - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Automatic Data Processing has lost 4.2% in the year-to-date period. The long-term earnings growth rate for ADP is currently projected at 12%.

EXL Service has gained 22.6% in the year-to-date period. The long-term earnings growth rate for EXLS is currently projected at 16.8%.

Insperity has lost 30.2% in the year-to-date period. The long-term earnings growth rate for NSP is currently projected at 15%.

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