Block (SQ) falls 4% after 'mixed' results

Block (NYSE: SQ) shares dropped about 4% in pre-market Friday trading despite the company reporting better-than-expected Q2 results and upping the full-year profit forecast.

Block reported an adjusted EPS of $0.39 on revenue of $5.53 billion (up 26% year-over-year). Analysts were looking for EPS of $0.34 on revenue of $5.12B. Cash App revenue grew as much as 36% YoY to $3.56B, easily topping the consensus of $3.17B.

The adjusted operating income margin came in at 28%.

Following Q2 outperformance, the company now expects to report full-year adjusted Ebitda of $1.5B, up from the prior $1.36B forecast. The adjusted operating is now expected to be positive $25 million, compared to the prior forecast for a loss of $115M.

“More than half of Cash App’s actives in the second quarter had a network of four or more accounts, which significantly enhanced retention and increased spend over time: Peer-topeer transactions per active reached an all-time quarterly high in the second quarter, while peer-to-peer volume was $53 billion, up 18% year over year,” the company said.

BTIG analyst Lance Jessurun said the results were "mixed."

"Strong profitability in the quarter was offset by gross margins suffering on a sequential basis driven by a significant uptick in transaction-based costs. FY23 guidance was raised on a dollar and margin basis for both adj. operating income and adj. EBITDA," Jessurun said on earnings.

"We maintain our Neutral rating on the name given our tempered expectations for discretionary spend, disappointing July trends, and tough lapping comps for Q3, ultimately seeing limited near-term upside potential for the stock."

Goldman Sachs analyst Michael Ng is more positive on Block as he highlighted beat-and-raise on Ebitda, as well as lower operating expenses.

"In our view, SQ’s 2H outlook for 21% company gross profit growth, combined with its raised 2023E EBITDA outlook ($1.50 bn v. $1.36 bn prior), supports the positive investment thesis that standalone Cash App should realize >20% gross profit growth (GSe: +33%) and Square could achieve DD% gross profit growth (GSe: +16%) despite the challenging macroeconomic backdrop, which is evidence of the secular tailwinds in each respective businesses."

By Senad Karaahmetovic

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