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Why the Block (ASX:SQ2) share price has dropped 6%

The Block Inc (ASX: SQ2) share price is currently down 6% after the business reported its result for the period to June 2022.

Block is a payments business which also owns the buy now, pay later (BNPL) operator Afterpay. Square is the payments part of the business that isn’t BNPL.

Block’s FY22 update

In the second quarter of FY22, the company reported the following numbers:

  • Total net revenue was $4.4 billion, down 6% year on year because of a reduction of bitcoin revenue
  • Excluding bitcoin, total net revenue was $2.62 billion, up 34% year on year
  • Gross profit of $1.47 billion, representing growth of 29% year on year
  • Square’s gross profit was up 29% year on year to $755 million
  • The cash app gross profit was $705 million, up 29% year on year
  • It generated adjusted EBITDA (EBITDA explained). That compares to $360 million in 2021 Q2 and $195 million in 2022 Q1
  • Net loss of $208 million, down from a net profit of $204 million in 2021 Q2

Block said that ‘food and drink’ has achieved the fastest gross profit growth of any Square vertical on a five-year compound annual growth rate (CAGR) basis. Block said that it is continuing to see strong success driving ‘acquisition’ of new sellers.

The company said that in the second quarter of 2022, BNPL made $208 million of revenue and $150 million of gross profit.

Excluding bitcoin and BNPL, revenue was up 23% to $2.41 billion. Excluding BNPL, gross profit was $1.32 billion, up 16%.

Other commentary

Block said that during the second quarter, it has “improved product parity” in several of its newest markets by launching Square Register in Ireland and France, as well as Square for Retail in France and Spain.

The ASX share wants to continue to grow around the world. It introduced Square Appointments in Japan to help more complex sellers accept online bookings, take payments, attract new customers and manage their teams.

It is continuing to expand its seller banking products during the second quarter by bringing ‘instant transfers’ to Australia. It launched 44 products across its international markets in the first half of 2022.

Markets outside the US made up 13% of Square gross profit, being $98 million. That was up from $48 million in the 2021 second quarter.

Final thoughts on the Block share price

In this period of higher interest rates and strong inflation, investors probably want to see these sorts of businesses making a small profit to be sustainable.

Over the last six months, Block has sunk 22%. But, I’m not sure if it’s worth buying – I’m not sure how much profit it’s going to be able to make in the future.

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