Fintech giant Block Inc. (NYSE: SQ) delivered a solid Q1 2024 earnings report that caused shares to gap 8.5% before profit-taking set in. The action mirrored the reaction to its business services sector competitor PayPal Holdings Inc.'s (NASDAQ: PYPL) results. However, unlike PayPal, Block shares were able to rally in the day following, while PayPal shares continued to sink lower. The difference lies in the numbers and the sentiment.
Block is a computer and technology sector holding company that operates several complementary ecosystems under one umbrella and tied together through its apps.
Square
Square offers a one-stop shop for payment processing, point-of-sale (POS) systems and financial services for businesses to conduct sales and transactions. Merchants can use Square's card readers, POS systems, and contactless payment terminals to conduct transactions. Additionally, Square offers financial services such as loans and working capital for qualifying merchants.
Cash App
Cash App enables peer-to-peer (P2P) payments, meaning users can send and receive money, make purchases, and invest in stocks and Bitcoin from mobile devices. Cash App also provides a debit card that can earn discounts under certain promotions.
Afterpay
Afterpay is a buy-now-pay-later (BNPL) service that lets users split the purchase price into installments. It allows merchants to increase sales as customers are provided options to pay for their purchases over time. Afterpay competes with rival BNPL service Affirm Holdings Inc. (NASDAQ: AFRM).
Daily Descending Channel Pattern
SQ is in a daily descending channel pattern. The upper descending trendline formed at $85.67, connecting the lower highs running parallel to the lower descending trendline connecting the lower lows. The parallel lines make up the descending price channel. SQ has attempted to break out of the channel twice but continues to struggle to rise and hold above the upper trendline. The daily relative strength index (RSI) peaked at the 50-band four times already. Pullback support levels are at $68.44, $65.69, $61.83, and $56.50.
Solid Q1 2024
Block reported Q1 2024 EPS of 74 cents, beating analyst estimates by two cents. Revenues climbed 19.6% YoY to $5.97, beating consensus estimates for $5.83 billion. Gross profits rose 22% YoY to $2.09 billion. Cash App revenues rose 23% to $4.17 billion, and gross profit rose 25% to $1.26 billion. Afterpay BNPL gross merchandise value (GMV) grew 25% YoY to $6.98 billion.
Expanding Access To and Liquidity of Bitcoin
Cash App’s Paid In Bitcoin features enable customers to convert a percentage of direct deposits into Bitcoin with no fees or price spreads. This helped launch Bitcoin Conversions for Square sellers. Bitkey is integrated with the Cash App to make Bitcoin more secure. Block will invest 10% of its gross profit from Bitcoin products into Bitcoin purchases monthly.
Raised Guidance
Block raised its Q2 2024 gross profit guidance to $2.165 to $2.185 billion. Adjusted EBITDA was forecast between $670 to $690 million. Adjusted operating income is expected to be between $305 to $325 million. Full year 2024 guidance was raised with gross profit to $8.78 billion, up from $8.65 billion. Adjusted EBITDA was raised to $2.76 billion from $2.63 billion. Adjusted operating income was raised to $1.30 billion from $1.15 billion.
CEO Insights
Block CEO Jack Dorsey noted that Cash App drove the strength. Cash App card, Bitcoin and Afterpay GPV growth was in line with expectations. Same-store sales growth was moderating, offset by strong attach rates on broader banking products and software. GPV growth is expected to be stable or improve during the second half of the year following favorable same-store growth. Block remains focused on initiatives to improve product velocity.
In the shareholder letter, Dorsey also focused attention on the company's Bitcoin strategy rather than the priorities of Square and Cash App. Dorsey talked about the focus on velocity in two main ways. First, making sure engineering and design disciplines are much stronger. Second is making sure they're focused on the most important things. For Square, its reliability. Making sure the system stays up and online for sellers around the clock. It's about providing sellers with workarounds just in case their networks fail into offline mode. Onboarding is a key focus as the company has taken the process down from 15 steps taking 20 minutes to two steps taking under five minutes.
Block said they will also be rolling out Afterpay on the Cash App card, modifying the final version based on how people are using the initial rollout version.
