Jack Dorsey’s Block, Inc. (NYSE:SQ) reported a surprise third-quarter earnings and revenue beat on the heels of its solid Cash App business. The fintech company has been struggling to gain momentum owing to the volatile cryptocurrency prices this year. The positive news pushed SQ stock higher by over 15% in the after-hours trading session on November 3.
Notably, Block’s gross profit jumped 38% year-over-year to $1.57 billion. This solid jump was attributed to Block’s online payments unit, Cash App, which registered a 51% rise in gross profit to $774 million. On the other hand, Square, the unit that sells terminals and point-of-sale software to businesses, marked a 29% jump in gross profit to $783 million.
Block also earns Bitcoin (BTC-USD) revenue through the sale of bitcoin to customers, which is included in the Cash App segment. The demand for cryptocurrency and related price fluctuations continue to impact the company’s bitcoin revenue.
Block’s Q3 Results in Detail
Block’s adjusted earnings of $0.42 per share handily beat the analysts’ estimates of $0.23 per share. Also, the figure came in much higher than the Q3FY21 figure of $0.25 per share.
Similarly, the payment company’s total net revenue jumped 17.7% year-over-year to $4.52 billion and also outpaced the consensus estimate of $4.49 billion.
The revenue jump was driven by a 17% rise in Transaction-based revenue to $1.52 billion and a whopping 71% increase in Subscription and services-based revenue to $1.19 billion. However, these were offset marginally by a 3% decline in Bitcoin revenue to $1.76 billion.
Is Block a Good Investment?
Following the Q3 print, Mizuho Securities analyst Dan Dolev reiterated a Hold rating on the stock with a price target of $57, which implies 5.7% upside potential to yesterday’s closing price of $53.91.
Dolev is happy with the boost from Cash App but has reservations about the company’s future course. “While lowering costs and pulling back on ‘experimental areas’ in 2023 could boost profits, it also potentially takes away some of the ‘edge’ that SQ had on innovation in the past,” the analyst noted.
Wall Street analysts echo Dolev’s sentiment regarding Block stock. On TipRanks, SQ stock has a Moderate Buy consensus rating based on 20 Buys, five Holds, and one Sell. The average Block price target of $94.88 implies a massive 76% upside potential to current levels. Meanwhile, the stock has lost 67.1% so far this year.
Ending Thoughts
Block has managed to exceed third-quarter expectations. Moreover, management’s outlook about reducing the full-year 2022 investments by an additional $140 million and a “slower pace of expense growth meaningfully compared to prior year” for 2023 indicate that the company may be able to continue its winning streak. Also, although analysts are cautiously optimistic, they have set a high upside potential for SQ stock for the next twelve months. All these may be motivating factors for investors to continue their belief in the company.
