Block, Inc. (XYZ) Q1 2025 Earnings Call Transcript

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

Overview

The earnings call shows strong financial performance with increases in gross profit, adjusted EBITDA, and free cash flow. The company is actively repurchasing shares, which is a positive signal. Despite cautious macro guidance, the company is optimistic about product innovation and growth in core verticals. The Q&A highlights a proactive approach to market challenges and strategic expansions, suggesting resilience and potential for growth. Overall, the positive financial results and strategic initiatives outweigh the cautious macro outlook, indicating a positive stock price reaction over the next two weeks.

Key Financial Performance

Total Block Gross Profit $2.29 billion, up 9% year-over-year.

Square Gross Profit Up 9% year-over-year, driven by GPV growth of 7.2%.

Cash App Gross Profit Up 10% year-over-year, impacted by changes in consumer spending behavior.

Adjusted EBITDA $813 million, up 15% year-over-year.

Adjusted Operating Income $466 million, up 28% year-over-year.

Adjusted Free Cash Flow $1.53 billion, compared to $1.07 billion a year ago.

Stock Repurchase Approximately $600 million of stock repurchased so far this year.

Adjusted Operating Income for the Year Expected to be $1.9 billion, or approximately 19% margin.

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Operating Highlights

New Product Launches: We are excited to host our first product release event in two weeks, showcasing over 100 products and features such as new Square Online features, improved food delivery integrations, and better support for sellers with large invoices.

Cash App Afterpay: We launched our retroactive BNPL product, Cash App Afterpay, in late February, with strong early conversion and adoption in April.

Square Financial Services: We received FDIC approval to use Square Financial Services to issue consumer loans for Cash App Borrow nationwide, doubling the number of Cash App actives we can offer Borrow.

Market Share Expansion: Square gained share this quarter, with product and go-to-market strategies working effectively to expand market share in target verticals.

Consumer Spending Behavior: We saw changes in consumer spending behavior impacting inflows and Cash App Card spend, particularly in discretionary areas like travel and media.

Adjusted Operating Income: We achieved our highest adjusted operating income and adjusted EBITDA ever, with adjusted EBITDA at $813 million, up 15% year-over-year.

Stock Repurchase: We have repurchased approximately $600 million of stock so far this year and intend to continue returning capital to shareholders.

Growth Strategy: We expect to accelerate growth across both Cash App and Square, with a cautious stance on the macro backdrop reflected in our guidance.

Investment in Sales and Marketing: We are investing in high ROI growth initiatives across Cash App and Square, with a focus on field sales and partnerships.

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Risk or Challenges

Macroeconomic Conditions: The company acknowledges that actual results could differ materially from forward-looking statements due to changes in macroeconomic conditions, indicating a risk related to economic fluctuations.

Consumer Spending Behavior: Changes in consumer spending behavior, particularly a shift impacting inflows and Cash App Card spend, were noted as a key driver of forecast misses, highlighting risks associated with consumer trends.

Regulatory Approval: While the company received FDIC approval for consumer loans, the regulatory landscape remains a challenge, as future changes could impact operations.

Investment Risks: The company has reflected a cautious stance on the macro backdrop in its guidance, indicating potential risks associated with ongoing investments in sales and marketing.

Credit Quality and Loss Rates: The company monitors performance daily and adjusts originations based on customer underwriting scores, indicating a risk related to credit quality and potential loss rates.

Supply Chain and Product Development: The company is focused on product velocity and go-to-market strategies, which may face challenges in execution and supply chain management.

Market Competition: The company is operating in a competitive environment, which poses risks to maintaining and growing market share.

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Guidance & Outlook

Product Velocity and Go-to-Market Strategy: Square gained market share in Q1 2025, with a focus on product velocity and go-to-market strategies.

Cash App Growth Initiatives: Expanding network with teens and families, optimizing product controls, and increasing marketing spend.

Square Financial Services Approval: Received FDIC approval to issue consumer loans for Cash App Borrow nationwide, doubling potential active users.

Cash App Afterpay Launch: Launched retroactive BNPL product in late February, with strong early adoption.

Investment in Sales and Marketing: Continued investment in high ROI growth initiatives across Cash App and Square.

Bitcoin Mining Chips and Systems: Expected delivery of first bitcoin mining chips and systems in the second half of the year.

2025 Gross Profit Growth: Expecting gross profit growth of 12% for 2025, totaling approximately $9.96 billion.

Q2 Gross Profit Growth: Expecting gross profit growth of 9.5% in Q2 2025.

Q3 and Q4 Gross Profit Growth: Expecting low-double-digit growth in Q3 and mid-teens growth in Q4.

Adjusted Operating Income: Expecting adjusted operating income of $1.9 billion for the year, approximately 19% margin.

April GPV Growth: April global GPV growth expected to be 9.6% year-over-year.

Cash App Borrow Contribution: Anticipating significant contribution to gross profit acceleration in the second half of the year.

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Shareholder Return Plan

Stock Repurchase: So far this year, through the end of April, we have repurchased approximately $600 million of stock, and we intend to continue returning capital to shareholders over the course of the year.

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Key Q&A

Q:Can you just give us a little more on how you develop this view given what’s happening on the ground, talking to customers, clients, employees?

A:We have made a lot of changes internally and to our systems, and we’re finally starting to realize that Square is gaining market share due to our efforts in consolidating and improving our technology platform. We need to deepen engagement with our customers and focus on increasing network density.

Q:Can you just give us a little bit more color on what changed over the past 90 days?

A:We saw a change in behavior in our Cash App customer base this tax refund season. Our gross profit guidance reflects a view that what we saw in Cash App may indicate a changing macro backdrop, and we’ve embedded macro softening into our growth outlook.

Q:Can you talk a little bit about the Cash Card Afterpay functionality and some of the early results you’re seeing there?

A:We’re excited about the integration of Cash Card and Afterpay, which allows users to split purchases retroactively. We’ve seen strong attach rates and healthy growth trends, and we plan to make more actives eligible.

Q:Could you comment on the macro resiliency of the Borrow model and your confidence level that your underwriting models are mature enough to support accelerating loan volume growth?

A:We believe underwriting through real-time machine learning models is a core competency. We haven’t seen changes to underwriting outcomes, and we have the ability to manage underwriting outcomes quickly if needed.

Q:Can you talk about Proto and how big it could be if it becomes as big as we think it will?

A:We’re excited about Proto and believe it has a huge opportunity in the bitcoin hardware supply industry, which is a $3 billion to $6 billion revenue industry. It will allow consumers to engage with mining in new ways.

Q:Could you walk us through some of the products that will be the biggest driver behind Square’s gross profit acceleration this year?

A:We’ve seen encouraging growth in core verticals and believe product innovation and go-to-market enhancements will drive growth. We’ll have more to share at our product release event.

Q:Can you unpack the components of this guide down from macro conservatism, decremental margin, incremental reinvestment?

A:We’re embedding incremental conservatism into our gross profit guidance due to the macro backdrop. We expect margins to expand this year despite a cautious outlook.

Q:Can you talk about your hiring on the Square side of the business and particularly on field sales?

A:We plan to accelerate hiring for field sales in the second half of the year based on strong early returns. We’re also seeing strong returns in our partnership channels.

Q:Are you planning on getting more aggressive with the entire base for Borrow or just the consumers with direct deposit?

A:We’re expanding Borrow to more states, which will double the number of potentially eligible actives. It’s not about being more aggressive, but about mechanics of expansion.

Q:What was the number in the quarter of the number of people using direct deposit?

A:We didn’t provide a number this quarter, but we continue to grow our Paycheck Deposit Actives year-over-year.

Q:Can you provide insights on Cash App and Square gross profit growth in April?

A:We expect gross profit growth to be 9.5% in Q2, with a cautious stance based on softening consumer spend.

Q:How does the caution on the macro end of the gross profit guide funnel down into what you’re assuming for Square GPV?

A:We expect Square GPV growth to accelerate to high single-digits in Q2, with a cautious approach based on the macro backdrop.

Q:Review of Unclear Management Responses

A:Management did not provide specific numbers for the direct deposit users in the March quarter, nor did they clarify the growth rate for Paycheck Deposit Actives. Additionally, there was a lack of clarity on the specific components of the guide down from macro conservatism, decremental margin, and incremental reinvestment.

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Earnings Word Cloud

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

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