Block shares slip on mixed Q3 print; annual guidance maintained

Block (NYSE:SQ ) reported third-quarter earnings that met expectations, but revenue fell short of analyst estimates. The stock initially fell 10% but those losses were reduced to around 3% in premarket trading Friday. 

The financial technology company, formerly known as Square, reported adjusted earnings per share of $0.88, in line with analyst projections. However, revenue for the quarter came in at $5.98 billion, missing the consensus estimate of $6.24 billion.

Despite the revenue shortfall, Block saw strong growth in its key business segments. Gross profit grew 19% YoY to $2.25 billion, with Cash App generating $1.31 billion in gross profit, up 21% YoY, and Square contributing $932 million, a 16% YoY increase.

"We outperformed our gross profit and profitability guidance in the third quarter of 2024," said CEO Jack Dorsey. "Cash App continued its strong performance, driven primarily by growth in inflows per active and an increase in monetization rate."

Block reported operating income of $323 million and adjusted operating income of $444 million for the quarter. The company's adjusted operating income margin expanded to 20%, reflecting strong growth and disciplined expense management.

For the full year, Block maintained its gross profit guidance of at least $8.89 billion, representing 18% YoY growth. The company raised its full-year outlook for adjusted operating income to at least $1.56 billion, or an 18% margin.

On the more negative side, gross profit growth guidance for the fourth quarter was 14%, missing the consensus estimate of 16.2%. 

In a post-earnings note, BTIG analysts said they "continue to like SQ as a BTIG Top Pick." While the company's shares are slightly down, analysts believe this is "mainly due to the light 4Q guidance and some investors figuring they can wait until 2H25 for a growth acceleration/catalyst."

They see now as a good entry point for the stock, citing its history of beating guidance, appealing valuation, and growth potential from increased product adoption and integration of Cash App with Square.

Meanwhile, Morgan Stanley (NYSE:MS ) analysts note that positive comments around Cash App "aren't translating to better inflow/monetization metrics, and we still think SQ is moving too slowly on credit."

"Meanwhile, we continue to anticipate challenges to accelerating Square growth even with more product/sales efforts," they added.

The firm reiterated an Underweight rating on the stock and lifted its target price from $55 to $60. 

Source: Investing.com