The Block Inc logo is shown in this illustration taken on April 10, 2023.
Dado Rovik | Reuters
roadblock It reported first-quarter earnings after the bell that beat analysts' estimates. The stock rose about 10% in extended trading.
Here's how the company did, compared to the analyst consensus from LSEG.
Earnings per share: 85 cents adjusted vs. 72 cents adjusted expected Revenue: $5.97 billion vs. $5.82 billion expected
Block reported $2.09 billion in gross profits, up 22% from last year. Analysts tend to focus on gross profit as a more accurate measure of a company's core transactional business.
The company reported net income of $472 million, or 74 cents per share, more than four times the net income of $98.3 million, or 16 cents per share, the previous year.
The company raised its revised EBITDA forecast for the second quarter to $690 million from $670 million.
Block, formerly known as Square, ended the year with 57 million monthly Cash App transaction activity in March, an increase of 6% year over year. Inflows per active transaction were $1,255, an increase of 11% year over year.
The Cash App business, the company's popular mobile payment platform, reported gross earnings of $1.26 billion, an increase of 25% year over year. Block, run by Twitter co-founder Jack Dorsey, said the number of monthly active users of its Cash App Card rose to 24 million in March.
Block is also more focused on integrating Afterpay, the buy-now-pay-later company it bought for $29 billion in 2021. Afterpay struggled after the deal, resulting in significant losses.
Block has scaled back operations in recent months. In January, Dorsey reportedly said in a memo to employees that the company had laid off a “significant number” of workers. This came after another round of layoffs in December.
The company is raising its forecasts for this year to reflect its strong performance in the first quarter, Chief Financial Officer Amrita Ahuja said in a call with CNBC.
Dorsey's note to shareholders began by directly answering an often-answered question: “Why the hell are you spending so much time on Bitcoin?”
“Less than 3% of the company’s resources are dedicated to Bitcoin-related projects,” Dorsey wrote. “But why spend time dealing with Bitcoin at all? We believe the world needs an open protocol for money, one that is not owned or controlled by any single entity.”
Bitcoin will ultimately help “serve more people around the world faster,” Bitcoin said. He added that from now on, Block will invest 10% of its total profits from Bitcoin products in purchasing Bitcoin for investment.
“We were one of the first public companies to include Bitcoin on its balance sheet,” he wrote.
The $220 million the company invested in bitcoin rose 160% to $573 million as of the end of the first quarter, according to Dorsey.
Federal investigation into Block
Cash App remains a significant contributor to the company's overall profitability.
Block's CFO told CNBC that the fintech company has seen “continued spending resilience” with not only growth in actives, but also growth in spending per monthly active user on a year-over-year and quarterly basis.
“Which once again demonstrates to us the continued resilience of this customer base and the strong engagement with our product,” Ahuja said.
Shares in Block fell 8% on Wednesday after an NBC investigation alleged that US prosecutors were probing the company's compliance practices based on information leaked to them by a former employee of the company.
“Most of the transactions discussed with prosecutors, which include credit card transactions and dollar and bitcoin transfers, were not reported to the government as required,” the NBC story claimed.
The whistleblower reportedly gave the government materials showing violations of know-your-customer and anti-money laundering rules, as well as evidence suggesting the administration ignored these lapses.
Unlike previous reports of possible wrongdoing at the company, the latest allegations involve both Cash App and the company's Square Point of Sale technology. It also includes within its scope international payments, sanctioned countries, and OFAC violations. In September, Alyssa Henry stepped down as CEO of Square. Dorsey stepped in to fill the role and a successor has not been announced.
A separate report published by the same NBC reporter in February concluded that two whistleblowers went to the US Treasury's Financial Crimes Enforcement Network, or FinCEN, to share similar allegations. The popular payment app “does not have an effective procedure” to identify its customers, two whistleblowers told officials, according to NBC.
If the federal investigation finds merit in these allegations, they see greater potential for fines or behavioral remedies such as stronger oversight teams and infrastructure rather than “something structural like limits on the types of businesses it can impose,” Macquarie analysts wrote in a note on Wednesday. Do.”
Last year, short-seller Hindenburg Research levied similar allegations, alleging that Block allowed criminal activity to operate with lax controls and “significantly” inflate Cash App's transaction user base, a key measure of performance.
Hindenburg described Block's internal systems as a “Wild West approach to compliance.”
— CNBC's Michael Bloom and Kate Rooney contributed to this report.
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