The Block Inc (ASX: SQ2) share price has jumped 23%. The market loved its 2023 third-quarter announcement and profit upgrade.
Block is the business that owns Square, as well as Afterpay following its acquisition.
Block Inc share price
Strong quarterly growth
These numbers are for the three months to 30 September 2023 compared against the prior corresponding period of the three months to September 2022.
- Total net revenue went up 24.4% to US$5.62 billion
- Gross profit rose 21.1% to US$1.9 billion
- Adjusted EBITDA (EBITDA explained) increased 46% to US$477 million
- Operating loss improved US$38.9 million to a loss of US$9.9 million
- Reported net loss worsened by US$14 million to US$29 million
Within the total revenue growth, transaction-based revenue increased 9.3% to US$1.66 billion, subscription and service-based revenue rose 25.3% to US$1.49 billion and Bitcoin revenue jumped 37.5% to US2.4 billion.
Square’s gross profit rose by 15% to US$899 million and the cash app’s gross profit went up 27% to US$984 million. These are strong numbers and helpful for the Block share price.
In terms of cash app growth, it said that its cash app card reached 22 million monthly actives as of September, with the cash app pay seeing “strong growth and positive unit economics” in the third quarter – as of September it had over 2 million cash app pay monthly actives, doubling since June.
Block said that its underlying expenses of $1.44 billion increased 14% year on year, with product development underlying expenses increasing by 30% to US$430 million. This increase was driven primarily by personnel costs related to its engineering team. Sales and marketing costs were slightly down year on year.
It ended the period with US$7.3 billion of cash, cash equivalents, restricted cash and investments in marketable debt securities. It reported ‘adjusted free cash flow’ of $1.3 billion for the nine months to 30 September 2023, compared to negative $17 million for the nine months to 30 September 2022.
Profit projection upgrade helps Block share price
The business increased its guidance for 2023.
In the fourth quarter of 2023 it’s expecting to generate gross profit of between US$1.96 billion to US$1.98 billion, adjusted EBITDA of between US$430 million to US$450 million and adjusted operating income of between US$40 million to US$60 million.
Its previous projection for the annual 2023 adjusted EBITDA figure was US$1.5 billion, while adjusted EBITDA is now guided to be between US$1.66 billion to US$1.68 billion.
2023 adjusted operating income was guided to be US$25 million, but now the forecast is between US$205 million to US$225 million.
For 2024, adjusted EBITDA is predicted to be US$2.4 billion, with adjusted operating income of US$875 million. It’s expecting a significant increase in the adjusted operating income margin.
I can see why the market is excited by this increased profitability, it looks good for Block in the foreseeable future, if revenue keeps rising. If it can maintain this momentum and profit margin trend, then further revenue growth should lead to even more profit growth, in percentage terms.
The market has quickly reacted to this, so it’s hard to say if the Block share price is a buy at this stage, there are probably other ASX growth shares that are better value today.
