Block Shares Drop Most Since March After Earnings Disappointment
Comment of the Day

August 07 2023

Commentary by Eoin Treacy

Block Shares Drop Most Since March After Earnings Disappointment

This article from Bloomberg may be of interest to subscribers. Here is a section:

Block Inc., Jack Dorsey’s payments company, tumbled as much as 14% after reporting results that fell short of some analysts’ expectations.

Jefferies Financial Group Inc.’s Trevor Williams said in a note that Block’s earnings report “lacks oomph,” even after the company increased its adjusted profit outlook for the rest of the year when it reported second-quarter results Thursday. BTIG LLC analyst Lance Jessurun called Block’s July trends “disappointing.”

Shares of the San Francisco-based company fell 11% to $65.14 at 12:32 p.m. in New York, after dropping to as low as $63.38 in the biggest intraday plunge since March.

Williams cited limited upside for Block’s Cash App, which started as a person-to-person payments app and now offers access to a variety of financial products. He also called “tepid” one measure of how many dollars are processed by Block’s payments systems. 

Both Cash App and Square, a payments platform geared toward small and midsize businesses, beat expectations in the second-quarter.

Eoin Treacy's view

Block is growing and is profitable but not enough to justify the valuation. That’s problematic in a high interest rate environment where the hurdle for investor interest is above zero.

The share ranged above $50 ahead of the pandemic surge and is back ranging above that level again. The challenge for the company is they paid a premium for CashApp and renamed the company Block on the expectation that blockchain is the future. They have a tiny position in bitcoin but that is what the company is associated with.

Legions of young people have had their first experience with credit via CashApp and other fintech companies. The long-term aim is to develop additional financial products to grow in line with the demographic. That strategy makes sense, but the execution is dependent on perfect timing and customer loyalty. Progress on those aims is likely required to spur investor interest. 

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