Shares of Block Surge 16% After Company Announces Surprise Profit

Block's stock experienced a 16% surge, following the payments company's fourth-quarter earnings report, which outperformed analysts' expectations on gross profit and revealed robust growth in Square and Cash App revenue.

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In comparison to analysts' consensus from LSEG, previously known as Refinitiv, here's how Block performed:

• Earnings per share: 45 cents adjusted, not directly comparable to estimates.
• Revenue: $5.77 billion vs. the expected $5.70 billion.

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Block reported $2.03 billion in gross profit, marking a 22% increase from the previous year. Analysts often prioritize gross profit as a more accurate measure of the company's core transactional businesses. The company raised its adjusted EBITDA forecast to at least $2.63 billion, up from $2.40 billion.

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Formerly known as Square and headed by Jack Dorsey, Block concluded the year with 56 million monthly transacting actives for Cash App in December. The majority of these customers utilized it for peer-to-peer payments or the Cash App Card. Cash App's gross profit for the year reached $1.18 billion, showing a substantial 25% year-over-year rise.

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The Cash App Card boasted 23 million monthly actives in December, experiencing a notable 20% increase, which was more than double the growth rate of total monthly actives. Dorsey expressed confidence in this strategy, believing it would lead to building the largest network in the long run, with an engaged customer base relying on Cash App as their primary banking solution.

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Block has been streamlining its operations in recent months, with reported layoffs in both December and January. Dorsey noted in a shareholder update that the company had successfully reduced its workforce to be below a previously set cap of 12,000 employees. He mentioned operating under this cap until it proves limiting, likely years into the future, resulting in a $70 million charge for severance costs.

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Additionally, Block recorded a $132 million impairment on its investment in the music streaming service Tidal. Despite a mixed dealmaking record, highlighted by the sale of Caviar to DoorDash in 2019 and the acquisition of Afterpay in 2021, Dorsey remains focused on integrating Afterpay into Cash App more tightly, particularly to power Cash App's buy-now, pay-later technology.

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The strong quarterly results and positive full-year outlook prompted Wall Street analysts to upgrade their ratings for Block on Friday. Wells Fargo upgraded Block to overweight and increased its price target from $65 to $95. Simultaneously, Seaport Research Partners upgraded the stock to a buy, also raising its price target to $95. Analysts at Seaport Research Partners praised Block's recent organizational streamlining, focus on Square and Cash App, and its commitment to driving profitable growth, expressing optimism about the company's future prospects.

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