How Did Block (SQ) Perform in Q3 Earnings, and Why Did Shareholders Get Jacked Again?

TL;DR

Block (SQ) reported $4.52 billion in Q3 revenue, up 17% year over year, but rising operating expenses continued to constrain profitability. Cash App subscription and service-based revenue grew from $694 million to $1.2 billion, while total costs reached $2.95 billion and gross profit exceeded $1.57 billion. Read on to see which business lines performed best and why expenses remain the central concern.

Transcript

do you think Elon Musk will come bail out black shareholders from Jack Dorsey like he did with Twitter talk about that and more on today's show what is going on investors hopefully guys are doing well out there time to kick off another earnings big earnings day where we had a lot of payment stocks including block formerly known as Square the ticker... Read More

Key Insights

• ✋ Block's revenue growth has slowed down, signaling a shift from its previous high-growth trajectory.
• 😮 The company's operating expenses, particularly in product development and general administration, continue to rise, impacting profitability.
• 😀 The cash app remains a strong performing business unit, but it may not be enough to drive sustained profitability.
• 🌸 The stock price performance of Block has been disappointing, with shareholders experiencing significant losses in the past year.
• 🤨 While the company has a strong balance sheet and cash reserves, its lack of profitability raises concerns about long-term sustainability.
• 🎮 Block's future growth potential may depend on its ability to control operating expenses and improve overall profitability.
• 🖤 The market seems divided on the company's prospects, with some investors optimistic about future growth and others cautious due to the lack of profitability.

Questions & Answers

Q: How did Block (SQ) perform in its Q3 earnings report?

Block reported Q3 revenue of $4.52 billion, representing 17% year-over-year growth. Its Cash App and Square Payment Processing Network performed strongly, but the company continued to face pressure from rising operating expenses.

Q: Why is Block's 17% revenue growth considered disappointing?

The presenter says Block has shifted from its former growth rates of 30%, 40%, or 50% to a mid-teens or possibly high-teens growth outlook. Although 17% year-over-year growth is positive, it is no longer viewed as impressive relative to the company's earlier trajectory.

Q: How did Cash App's subscription and service-based revenue perform?

Subscription and service-based revenue, associated with Cash App, increased from $694 million in the prior year to $1.2 billion. Its costs rose from $128 million to $225 million, leaving nearly $1 billion in gross profit according to the presenter.

Q: Why are Block's operating expenses a concern?

Block continues to increase operating expenses quarter over quarter, limiting its ability to turn revenue growth into operating profit. Product development reached $548 million, sales and marketing rose from $409 million to $485 million, and general and administrative expenses climbed from $267 million to $395 million.

Q: What revenue is expected for Block in the fourth quarter?

Block did not provide formal guidance, so the presenter cites a Wall Street estimate of $4.66 billion for the upcoming quarter. The presenter also suggests an outside possibility of reaching $4.75 billion.

Q: Could higher fourth-quarter revenue improve Block's profitability?

The company indicated that non-GAAP operating expenses were expected to rise by more than $206 million to nearly $1.5 billion in the next quarter. The presenter therefore argues that sequential revenue gains from Q3 to Q4 could be consumed by higher operating expenses.

Q: How profitable are Block's hardware and Bitcoin businesses?

Hardware operates as a loss leader: Block spent $76 million to generate $43 million in hardware revenue. Bitcoin generated $1.76 billion in revenue against about $1.23 billion in costs, and the presenter characterizes it as an extraordinarily low-margin business in which Block mainly acts as a middleman.

Q: What were Block's total costs and gross profit in Q3?

Against roughly $4.5 billion in revenue, Block recorded total costs of $2.95 billion. That produced gross profit exceeding $1.57 billion, although growing operating expenses continued to weigh on overall profitability.

Summary & Key Takeaways

• Block reported Q3 earnings of $4.52 billion, showing 17% year-over-year growth, but falling short of the high growth rates of previous years.

• The company's cash app and Square Payment Processing Network performed well, but the overall revenue growth is not impressive.

• Block's operating expenses continue to increase, minimizing the potential for profitability.