Block Inc. Reports Q1 Earnings Miss, Stock Plunges 20%
Block Inc. (NYSE: XYZ), a fintech company known for digital payments and various financial services, recently announced its first quarter earnings. The results significantly underperformed expectations, revealing earnings per share of $0.47 on sales of $5.8 billion. This falls short of consensus estimates of $0.97 and $6.2 billion, respectively.
The disappointing earnings figure, combined with a guidance cut, triggered a sharp market reaction. Block’s stock price dropped by 20% on May 2, 2023, and is down 46% year to date, raising investor concerns about the company’s recent performance.
Block’s Q1 Financial Performance Overview
In Q1, Block reported a total revenue of $5.8 billion, marking a 3.1% decline year over year. Analyzing revenue segments, transaction revenue grew slightly by 2.6% to $1.6 billion. In contrast, subscription and services revenue exhibited robust growth, increasing by 12.4% to $1.9 billion. However, hardware revenue fell by 11.7% to $29 million, and Bitcoin-related revenue decreased by 15.7% to $2.3 billion.
Despite the overall revenue decline, some key metrics showed improvement. Gross Payment Volume (GPV) reached $56.8 billion, up 4.4% from the previous year, while EBITDA rose by 15.3% to $813 million compared to the same quarter last year.
Block also saw a notable increase in profitability during Q1, with adjusted operating margins expanding to 20%, a 300 basis point improvement year over year. Consequently, earnings per share rose by 19% to $0.56. However, the company’s guidance points to ongoing challenges. For Q2, Block projects gross profit to grow by 9.5% to $2.45 billion, below the expected $2.54 billion, and anticipates an operating margin of 18%. The company cited a soft macroeconomic environment, reduced consumer spending, and lower inflows as contributing factors to these revisions.
The Implications for Block’s Stock
Following the Q1 results, Block’s shares experienced a significant drop of 20%. Such volatility is not unprecedented for Block stock. Over more extended periods, XYZ stock has consistently underperformed against the broader market, recording returns of -26% in 2021, -61% in 2022, 23% in 2023, and 10% in 2024.
In contrast, the Trefis High Quality Portfolio, which consists of 30 stocks, has shown considerably less volatility and has outperformed the S&P 500 over the previous four years. This portfolio’s stocks have provided better returns with lower risk compared to the benchmark index.
In light of the current uncertain macroeconomic environment, typified by tariffs and trade conflicts, questions arise about whether XYZ stock will underperform the S&P 500 in the upcoming year or experience a recovery.
Despite the recent disappointing results, Block’s stock, now trading around $46, has a price-to-sales ratio of 1.2x, significantly below its four-year average of 2.8x. This valuation may reflect the challenges Block faces, including increased competition from Venmo and current consumer spending patterns. As such, the present stock price may represent an opportunity for substantial long-term returns.
Although Block’s stock has growth potential, comparing its performance against peers on key metrics is beneficial. Additional valuable comparisons across various industries are available at Peer Comparisons.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
