Block reported first-quarter earnings that exceeded analysts’ estimates, leading to a 10% rise in the stock in extended trading. The company posted earnings per share of 85 cents adjusted, compared to 72 cents expected, and revenue of $5.97 billion, surpassing the expected $5.82 billion. Block’s gross profit reached $2.09 billion, up 22% from the previous year, with net income quadrupling to $472 million, or 74 cents per share. The company also raised its adjusted EBITDA forecast for the second quarter to $690 million from $670 million.
The Cash App business, Block’s popular mobile payment platform, reported $1.26 billion in gross profit, marking a 25% year-over-year increase. The company ended the year with 57 million monthly transacting actives for Cash App in March, up 6% year-over-year, with inflows per transacting active reaching $1,255, up 11% year over year. Cash App Card monthly active users also increased to 24 million in March. CEO Jack Dorsey stated that less than 3% of company resources are dedicated to bitcoin-related projects, but the company believes in the importance of an open protocol for money.
Despite strong performance, Block faced challenges after an NBC investigation revealed that U.S. prosecutors were probing the company’s compliance practices based on leaked information by a former employee. The report suggested that many transactions, including credit card transactions, dollar transfers, and bitcoin transactions, were not reported to the government as required. The whistleblower provided evidence of breaches in know-your-customer and anti-money laundering rules, as well as indications that management ignored these lapses. The allegations encompassed both Cash App and Square point-of-sale technology, as well as international payments, sanctioned nations, and breaches of the Office of Foreign Assets Control.
Following the NBC report, shares in Block dropped 8%, as analysts speculated potential fines or behavioral remedies as a result of the Federal probe findings. Former Square CEO Alyssa Henry stepped down in September, with Dorsey taking over the role in the interim. Earlier reports from the same NBC reporter had revealed that whistleblowers had raised similar concerns to the U.S. Treasury’s Financial Crimes Enforcement Network, indicating a lack of effective procedures to verify customer identities. Short seller Hindenburg Research had previously made similar claims about Block’s compliance issues and alleged inflated metrics.
Overall, Block remains focused on its business growth and investment in new technologies, such as bitcoin. The company has committed to investing 10% of its gross profit from bitcoin products into bitcoin purchases for investment. While facing regulatory scrutiny and ongoing investigations, Block continues to demonstrate resilience in its Cash App business, with growth in monthly active users and spend per user. The company’s response to the allegations and its ability to address compliance issues will be crucial in maintaining investor confidence and sustaining its financial performance in the future.
