Shares of fintech stocks have taken a beating this year with stock prices of Block (SQ), PayPal Holdings (PYPL), and Marqeta (MQ) tanking by 41.8%, 56.2%, and 49.8%, respectively, year-to-date. However, shares of Block were up 6% in pre-market trading on Friday as the fintech company’s Q1 results indicated the company’s resilience.
In Q1, Block generated total net revenues of $3.96 billion, a drop of 22% year-over-year while analysts on the Street were expecting $4.19 billion. The drop in revenue was driven by a massive fall in Bitcoin prices in the quarter. However, excluding Bitcoin revenue, SQ’s revenues came in at $2.23 billion, an increase of 44% year-over-year.
Adjusted earnings came in at $0.18 per share, lower than analysts’ estimates of $0.24 per share. Moreover, the figure was also much lower than the prior year’s comparative figure of $0.41 per share.
SQ has already started integrating Afterpay, a global “buy now, pay later” (BNPL) digital platform into its Square and Cash App ecosystems after the company completed the acquisition of Afterpay on January 31.
Since then, SQ has witnessed nearly 13,000 Square merchants engage in BNPL sales, increasing the Afterpay active sellers by almost 10% in Q1.
The company’s Square commerce ecosystem helps “sellers start, run, and grow their businesses,” while Cash App provides an ecosystem of “financial products and services to help individuals manage their money.”
Block’s Square and Cash App ecosystems helped it deliver an impressive total gross profit of $1.3 billion in Q1, a rise of 34% year-over-year. BTIG analyst Mark Palmer considers gross profit as the “primary metric by which to evaluate the company’s operating results.”
Excluding Afterpay, SQ’s gross profit was up 25% year-over-year.
When it comes to the Cash App, it generated a gross profit of $578 million in Q1, after excluding Afterpay, registering a growth of 17% year-over-year.
The company’s management stated on its Q1 earnings call that the Cash App card was one of its “fastest-growing monetization streams with gross profit growth in the first quarter of more than 50% year over year, despite strong growth in the prior-year period, and more than 170% growth on a three-year CAGR basis.”
SQ also saw its “highest quarterly inflows ever into Cash App, with growth on both a quarter-over-quarter and year-over-year basis.”
The company’s Square ecosystem is also doing exceedingly well as it continues to gain market share among mid-market sellers. Square had a gross profit of $615 million (excluding Afterpay), a jump of 31% year-over-year.
Amrita Ahuja, Block CFO, commented, “Cash App and Square to sequentially grow gross profit each quarter throughout the year, even excluding Afterpay, assuming the macroeconomic environment remains stable.”
Ahuja added that through April, SQ has not “yet seen a deterioration in overall consumer spending.”
Palmer considered the above comment to be in “stark contrast to those of some other payment companies that pointed to uncertain macroeconomic and geopolitical conditions to explain underwhelming operating performances.”
The analyst remained bullish on the stock with a Buy rating but reduced the price target to $175 from $230 earlier “to reflect the fact that investors’ willingness to pay fuller multiples for growth stories has waned along with their risk appetites during the market downturn.”
Wall Street’s Take
The rest of the analysts on Wall Street are upbeat about the stock with a consensus rating of Strong Buy based on 30 Buys and four Holds. The average SQ stock forecast is $175.09, implying 83.2% upside potential.
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