Block's Q2 outlook boosted by Cash App rebound estimate

Block's Q2 Earnings Outlook and Market Expectations

Block, a leading payments company, is set to release its second-quarter earnings on Thursday, August 7th, after the market closes. The results are anticipated to be influenced by a recovery in the performance of its Cash App segment, which could help the company exceed expectations and potentially revise its full-year guidance upward.

The current consensus estimates for Block’s EPS stand at $0.68, reflecting a year-over-year decline of 26.9%. Meanwhile, revenue is expected to reach $6.29 billion, marking a modest increase of 2.1% compared to the previous year. These figures highlight the challenges the company has faced, particularly in the first quarter, where results fell short of expectations due to weaker-than-anticipated spending on Cash App Cards.

This underperformance led Block to adopt a more conservative outlook for future growth, prompting several analyst downgrades. Analysts have expressed skepticism, noting that other fintech companies have reported more positive macroeconomic conditions in their first-quarter results. As a result, there is concern over whether the issues observed in the Cash App segment are structural or merely one-time anomalies.

However, there are signs of improvement. By mid-May, Amrita Ahuja, Foundational Lead at Block, mentioned during a conference that the company had seen a meaningful improvement in Cash App gross profit and inflows per active user, with year-over-year growth from March into April. This trend suggests that the Cash App may be on the path to recovery.

BTIG analysts have noted that the Street's 9.4% growth expectation for Cash App gross profit appears too conservative, especially given the 13% growth recorded in April. They have revised their estimate upwards to 10.7%, although they still consider it conservative. Their updated forecast implies approximately 9.6% growth in May and June, following the strong performance in April.

In addition to the progress in the Cash App segment, Block’s Square segment is also showing signs of improvement. Analysts believe that the company’s investments in this area are beginning to yield positive results. Bloomberg analyst Diksha Gera highlighted the potential for Block’s second-half performance to attract investor attention, citing the possibility of a beat in the second quarter driven by stronger gross profits across both segments.

Jefferies analyst Trevor Williams also expects Block to exceed expectations and raise its full-year guidance. This sentiment is echoed by various market participants who view the company as a potential long-term investment opportunity, despite the risks involved.

Historical Performance and Investor Sentiment

Over the past two years, Block has beaten EPS estimates 63% of the time and revenue estimates 50% of the time. In the last three months, there have been nine upward revisions and eight downward revisions for EPS estimates, while revenue estimates saw six upward and seven downward revisions.

The stock has experienced a year-to-date decline of approximately 10%, but it has gained around 29% since mid-May. Analysts at Evercore ISI have pointed out that the stock’s valuation is significantly discounted compared to its peers, and it does not yet fully reflect the early stages of operational improvements that are starting to take shape.

Block’s inclusion in the S&P 500 Index by S&P Dow Jones Indices has also contributed to a surge in its stock price, marking a significant milestone for the company. This development reflects the strength of Block’s business and the efforts of its teams in building tools that enhance access to the economy through its brands.

Market Perception and Insider Activity

The Wall Street community and Seeking Alpha authors generally view Block as a Buy. However, the Quant Rating system, which is data-driven, assigns the stock a Hold rating. This divergence in opinions highlights the mixed sentiments among investors.

Insider activity has shown a net selling trend, with 27 sell transactions reported in the last three months against 21 open market buys for the company’s class A common stock. Additionally, short interest stood at a high rate of 3.44% of the total float as of July 24.

Additional Insights on Block

Block’s recent developments include the announcement of a new peer-to-peer payment feature on Cash App and the rollout of merchant cash advances in the U.K. by Square. These initiatives underscore the company’s ongoing efforts to expand its services and strengthen its market position.