Block, Inc. (SQ) Q3 2024 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance with record profitability, increased free cash flow, and raised guidance. The Q&A section indicates positive sentiment despite some uncertainties, with management addressing competitive pressures and regulatory compliance effectively. The announced $3 billion share repurchase program and optimistic guidance for 2024 and 2025 further support a positive outlook. However, some partner benefits delayed to 2025 and unclear management responses slightly temper enthusiasm. Overall, the stock price is likely to see a positive movement of 2% to 8% over the next two weeks.

Key Financial Performance

Gross Profit $2.25 billion, up 19% year-over-year (16% growth for Square and 21% growth for Cash App). This increase is attributed to strong performance across the company.

Adjusted Free Cash Flow $1.5 billion compared to $945 million in the prior 12 months, indicating a significant increase in profitability.

Adjusted Operating Income Highest quarterly profitability ever on a dollar and margin basis, reflecting meaningful margin improvement.

Adjusted EBITDA Highest quarterly profitability ever on a dollar and margin basis, reflecting meaningful margin improvement.

Gross Profit Guidance for Q4 2024 Expected to be $2.31 billion or 14% growth year-over-year, with underlying trends in the business being stable to improving.

Rule of 36 A significant improvement of 6 points compared to 2023 and 7 points compared to the initial 2024 guide, composed of 3 points from growth outperformance and 4 points from margin outperformance.

Monthly Active Users (MAUs) for Cash App 57 million, relatively stable with a 3% year-over-year increase.

Average Revenue Per User (ARPU) for Cash App $75 in Q3, up from $65 last year, indicating a 16% year-over-year growth.

Cash App Card Transactions Average of six transactions per week per active user, indicating strong engagement.

Cash App Borrow Gross Profit Growth Up more than two times year-over-year in Q3.

Buy Now Pay Later Gross Profit Growth 29% in Q3, with 23% GMV growth, indicating stronger performance compared to the prior quarter.

Cash App Pay Monthly Actives Surpassed Afterpay's North American active users, indicating strong adoption.

Bitcoin on Balance Sheet 8,300 Bitcoin worth approximately $530 million, with current trading values being about $100 million more.

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Operating Highlights

Cash App Card with Afterpay: Transforming 24 million Cash App Cards into a better alternative to credit cards with the launch of Afterpay on Cash App Card.

Square's order platform: Rolled out Square's order platform to bring new features to sellers like pre-authorization.

Enhanced Square for restaurants: Testing a new and enhanced Square for restaurants' point-of-sale experience, expected to be available to all sellers in 2025.

Single app experience: Rolling out a single app experience to new sellers, with broader launch expected in 2025.

Square GPV growth: Expecting modest improvement in Square GPV growth in Q4 2024 and further acceleration in 2025.

Cash App Borrow expansion: Shifting the expansion of Cash App Borrow into new customer segments, expected to scale in 2025.

Partnerships: Announced partnerships with T-Mobile in the U.S. and SalonCentric, with a diversified strategy for international markets.

Adjusted free cash flow: For the 12 months ending in September, adjusted free cash flow was $1.5 billion compared to $945 million in the prior 12 months.

Sales and marketing investment: Plans for a step-up in sales and marketing for both Square and Cash App to drive growth into 2025.

Field sales hiring: Initiated hiring of local end-market sales personnel to drive acquisition of new sellers.

Rule of 40: Plans to reach Rule of 40 in 2026 with mid-teens gross profit growth and mid-20% adjusted operating income margin.

Focus on technology and compliance: Emphasizing technology to build stronger systems and ensure compliance amid evolving regulatory environment.

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Risk or Challenges

Regulatory Risks: The company acknowledges the evolving regulatory environment surrounding fintech banks, emphasizing the need to build stronger systems to comply with potential regulations. They are focused on leveraging technology to stay ahead of regulatory requirements.

Supply Chain Challenges: There are delays in expected benefits from partner transactions that have been pushed to 2025, impacting gross profit growth for the fourth quarter.

Competitive Pressures: The company is aware of competitive pressures and is focused on enhancing its product offerings and technology to maintain its market position.

Economic Factors: The company’s guidance assumes a stable macro-environment, indicating that economic fluctuations could impact their performance.

Operational Efficiency: The company is actively seeking further efficiency gains in operating expenses while balancing investments in growth initiatives, which may pose challenges in resource allocation.

Market Adoption Risks: The company is cautious about the adoption rates of new products like Afterpay on Cash App Card, indicating a need for careful ramping and testing to ensure successful market penetration.

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Guidance & Outlook

Ecosystem of Lending Products: Focused on increasing access with Square Loans, Afterpay, Buy Now Pay Later, and Cash App Borrow through better technology, transparency, and simplicity.

Rule of 40: Plans to reach Rule of 40 in 2026 with at least mid-teens gross profit growth and mid-20% adjusted operating income margin.

Sales and Marketing Investment: Plans for a step-up in sales and marketing for both Square and Cash App to drive growth into 2025.

Product Innovations: Rolling out Square's order platform and enhancing Square for restaurants' point-of-sale experience.

Cash App Card Transformation: Transforming 24 million Cash App Cards into a better alternative to credit cards with Afterpay.

Field Sales Hiring: Initiating local end-market sales hiring to drive acquisition of new sellers.

2024 Gross Profit Guidance: Expecting gross profit of $2.31 billion for Q4 2024, representing 14% growth year-over-year.

2024 Adjusted Operating Income Guidance: Raised guidance for adjusted operating income and adjusted EBITDA for the full year 2024.

2025 Gross Profit Growth: Expecting at least 15% gross profit growth in 2025.

2025 Adjusted Operating Income Margin: Committed to expanding margins on an adjusted operating income basis in 2025.

2025 GPV Growth: Expecting GPV growth to improve next year, ending 2025 at a higher growth rate than 2024.

2025 Cash App Borrow Expansion: Shifting expansion of Cash App Borrow into new customer segments to 2025.

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Shareholder Return Plan

Adjusted Free Cash Flow: For the 12 months ending in September, adjusted free cash flow was $1.5 billion compared to $945 million in the prior 12 months.

Shareholder Return Plan: For full year 2024, we have raised our guide on adjusted operating income and adjusted EBITDA, and we have maintained the gross profit guidance we outlined in August.

Cash App Borrow: We shifted out the expansion of Cash App Borrow into new customer segments, and we now expect both of these benefits to land in 2025.

Cash App Card: We're about to transform 24 million Cash App Cards into a better alternative to credit cards when we launch Afterpay on Cash App Card.

Afterpay on Cash App Card: We see that this is a meaningful opportunity for us that we're going to roll out and scale over the next short time.

Shareholder Letter: The shareholder letter explains our ecosystem of lending products, our methodology, how we address risks, and our competitive advantage.

Cash App Pay: Cash App Pay monthly actives have actually now surpassed Afterpay's North American active.

Square Loans: We are focused on increasing access with Square Loans, Afterpay, Buy Now Pay Later, and Cash App Borrow through better technology, transparency, and simplicity.

Lending Products: We want to lead with technology and that means that we have a deep understanding of our sellers, our Cash App customers, our Afterpay customers, and merchants.

Bitcoin on Balance Sheet: We have just over 8,300 Bitcoin on the balance sheet, which as at the end of the quarter was worth $530 million.

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Key Q&A

Q:Can you just give us a little bit more on visibility there and the building blocks that are needed to get to that?

A:We expect to see modestly improved growth in the fourth quarter relative to the third quarter and further acceleration in growth from current levels into 2025. In the third quarter, we saw growth at 7.5%, which is a moderation of the 7.8% growth we saw in the second quarter. The U.S. was about 4.9% and international growth was strong at 20%. Since then, we've seen an improvement in year-over-year Square U.S. GPV growth each month since July.

Q:Can you talk a little bit about the initial team and the plans for expansion?

A:We have our first group of dedicated field sales reps in market now and we plan to continue hiring here in the fourth quarter and into next year. We think that by putting resources on the ground in local markets helps support our brand perception and broader marketing motion.

Q:How is the evolving regulatory environment impacting you guys, and what are you doing around compliance?

A:We're focused on what we can control and making sure that we continue to build stronger systems as the horizon evolves. We're applying better technology and have made a strong discipline from day one of the company to focus on compliance and risk.

Q:Can you give us a little more color on the timing-related impacts to Q4 gross profit?

A:There are two key pieces: first, on the Square side, some partner benefits expected to land in Q4 will now land in 2025. Second, we've shifted the expansion of Cash App Borrow to new customer segments into 2025.

Q:What are your thoughts on the trends in Cash App and balancing user growth versus ARPU expansion?

A:We expect to see more moderated growth in MAUs, likely ending the year around 57 million. Our focus is on engagement and driving product adoption, which has led to a 16% year-over-year growth in ARPU.

Q:Can you talk about how the lending products are enhancing the entire ecosystem?

A:Having easy access to loans has been a significant differentiator for us. We want to lead with technology to make it transparent and simple for our customers to use these products.

Q:What are the early learnings from the Cash App incentives marketing?

A:We're seeing high engagement and uplift in customers setting up direct deposit through our new in-app experience. We're excited about the potential of our marketing efforts.

Q:Can you talk about the composition of Cash App monetization and how it might progress?

A:Cash App Card is our largest gross profit revenue stream, with strong growth in actives and spend per active. Borrow and Buy Now Pay Later are also driving meaningful growth.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specific timing for the broader rollout of Afterpay on Cash Card, stating only that they want to ensure the experience is correct before rolling it out. Additionally, there was a lack of clarity on the exact impacts of the evolving regulatory environment on their operations, with management focusing on what they can control.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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Block, Inc. (SQ) Q3 2024 Earnings Call Transcript

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The earnings call summary indicates strong financial performance, with significant year-over-year growth in gross profit and adjusted EBITDA. The announced $3 billion share repurchase program is a positive signal for shareholder returns. Although competitive pressures and economic factors pose risks, the optimistic guidance for 2024 and strategic initiatives like the Afterpay integration and new partnerships provide a favorable outlook. The Q&A section highlighted management's focus on growth and innovation, despite some vague responses. Overall, the sentiment is positive, suggesting a 2% to 8% stock price increase over the next two weeks.

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Frequently Asked Questions

Where does this earnings call transcript come from?

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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.