Block raises profit guidance after Q3 beat; Shares surge 17%

(Updated – November 3, 2023 6:22 AM EDT)

Block Inc (SQ) shares surged as much as 16.5% in early Friday trade after the payments company raised its adjusted Ebitda forecast for the full year.

In the third quarter, Block posted an adjusted earnings per share (EPS) of 55 cents, a significant improvement from 42 cents year-over-year, and exceeding the consensus estimate of 47 cents. Net revenue was $5.62 billion, up 24% from a year ago, and above the estimate of $5.47 billion.

Adjusted EBITDA amounted to $477.5 million, easily topping the estimate of $373.8 million. The gross payment volume totaled $60.08 billion, reflecting a 10% annual growth, albeit slightly below the estimated $61.04 billion.

Cash App showed strength with 55 million monthly transacting active accounts, a 1.9% increase from the previous quarter, slightly exceeding the estimate of 54.7 million.

The company now sees full-year adjusted Ebitda at $1.67 billion, up from the prior forecast of $1.5 billion. Block expects its 2024 adjusted Ebitda to increase to $2.4 billion.

Block also announced a $1 billion stock buyback program.

Piper Sandler analysts cut the price target to $67 per share but reaffirmed an Overweight rating on SQ shares.

“Despite the slowing top-line, guidance for FY24 adjusted operating income and EBITDA was better than expected as SQ is in the process of implementing a series of efficiency initiatives. We expect the stock to react well to the guide for better operating margins,” they said.

RBC analysts added:

“In what was largely an inline gross profit growth quarter (EBITDA meaningfully beat), SQ laid down the gauntlet on materially improving profitability in the organization, partially by capping its headcount (going to 12K from 13K), improving efficiency (via automation), and gaining some leverage on stock comp heading into FY24.”