Block’s Bitcoin Profits Soar 37% – But It’s Not All Good News

John Smith

Block Inc. (formerly Square Inc.) released its third quarter 2023 earnings report, showing substantial growth in revenue and profits driven largely by its Bitcoin operations. The payments company, founded and led by Jack Dorsey, exceeded expectations across several key metrics and outlined an optimistic growth strategy going forward.

Bitcoin Revenue Jumps 37%

The standout figure from Block’s latest earnings is the continued growth of its Bitcoin revenue, which reached $2.42 billion in Q3 2023 – a 37% increase year-over-year.

This was the largest contributor to Block’s total Q3 net revenue of $5.62 billion, itself a 24% jump from Q3 2022. The company’s Bitcoin gross profit also rose to $45 million, up 22% from the same quarter last year.

Block’s expanding cryptocurrency business reflects the growing mainstream adoption of digital assets like Bitcoin. The company has leaned into crypto as both an investment and service offering, letting Cash App users easily buy and sell Bitcoin.

Block put over $200 million of its own corporate cash into Bitcoin in 2020 and 2021 and continues holding it as an indefinite-lived intangible asset on its balance sheet.

No Bitcoin Impairment Losses

Despite Bitcoin’s high volatility, Block reported no impairment losses on its Bitcoin holdings in Q3 2023. This is because Bitcoin’s average market price during the quarter did not decline below Block’s carrying value on its balance sheet.

With Bitcoin hovering around $20,000 in recent months, Block’s early purchases remain “in the money” and unimpaired. Other companies like MicroStrategy have reported hundreds of millions in Bitcoin impairment charges this year due to buying at higher prices.

Block’s profitability did take a slight hit, however, due to $367 million in estimated customer losses from the FTX collapse in November 2022. But this was offset by the overall strength of its crypto business.

Cash App Growth Accelerates

Block’s Cash App ecosystem saw considerable user growth, with monthly actives reaching 49 million in Q3 2023 – up 20% year-over-year. The network effects of Cash App are kicking in, boosted further by viral product drops like Cash App Friday’s.

Notably, Cash App Pay, the app’s merchant payments service, doubled its monthly active customers since June to over 2 million. This squares with Block’s plans to turn Cash App into a more robust financial and commercial platform beyond just peer-to-peer payments.

Adjusted earnings metrics all exceeded expectations as well. Adjusted EPS came in at $0.42, significantly higher than Q3 2022’s $0.01. Adjusted EBITDA rose 51% year-over-year to $327 million.

Upward Revised 2023 Guidance

Citing its strong Q3 performance, Block raised its 2023 revenue guidance to $17.7-17.9 billion, Gross Profit to $7.4-7.5 billion, and Adjusted EBITDA to $1.67-1.7 billion. This revision implies 35-37% total net revenue growth for the full year.

Block also firmed up its profitability targets through 2026. It aims to achieve over 500 basis points of margin expansion and an above 40% adjusted EBITDA margin by 2026. This “Rule of 40” framework should appease investors leery of Block’s cash burn and push toward sustained profitability.

Other Key Metrics and Highlights

  • Square Gross Payment Volume (GPV) expanded 20% year-over-year to $54 billion in Q3 2023. This core business continues to expand both online and offline.
  • Block repurchased $183 million worth of its own shares in Q3 as part of a new $1 billion buyback program announced alongside earnings.
  • Operating expenses grew just 15% annually, demonstrating Block’s cost discipline amid a tightening funding environment. It aims to keep headcount under 12,000 moving forward.
  • Afterhours trading saw Block shares jump over 10% following the earnings release, recovering some of its ~50% losses in 2022.

In summary, Block’s Q3 2023 earnings beat expectations across the board, proving it can turn growing Bitcoin adoption into outsized revenue growth. Cash App engagement also indicates Block’s convergence strategy is gaining hold.

And the company’s revised guidance shows management’s confidence that this trajectory can continue, even if macro headwinds persist. For a firm like Block with its fingers directly on the pulse of cryptocurrency innovation, that is an enviable position moving into 2023.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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