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Companies across the consumer-spending sphere have been sending mixed signals about the health of the consumer, and soon it will be time for Block Inc. to weigh in.
While Visa Inc.
V,
and Mastercard Inc.
MA,
have signaled healthy spending levels, banks like JPMorgan Chase & Co.
JPM,
have indicated some pressure on lower-income customers. Investors will find out how these dynamics have affected Block
SQ,
when the company, which houses businesses such as Square and the Cash App, reports fourth-quarter results Thursday afternoon.
See also: Square changes its name to Block as business expands
What to expect
Earnings: Analysts tracked by FactSet expect Block to report an adjusted 30 cents a share for the fourth quarter, up from 27 cents a share for the same period of the previous year. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate calls for 34 cents a share.
Revenue: The FactSet consensus calls for $4.62 billion in fourth-quarter revenue, while those polled by Estimize model $4.64 billion on average. In the year-earlier December quarter, Block generated $4.08 billion in GAAP revenue.
With Block, however, analysts tend to focus more on the company’s gross profit than on its revenue, since the revenue line is skewed by items like a bitcoin-trading feature within the Cash App that carries minimal margin. Analysts surveyed by FactSet expect that Block will have generated $1.63 billion in gross profit during the latest quarter, up from $1.18 billion a year before.
Stock movement: Block shares have gained following seven of the company’s last 10 earnings reports. The stock has lost 18% over the past 12 months, though it’s up 14% on a three-month basis. The S&P 500 has declined 6% over the past 12 months and slipped about 1% over the past three months.
Of the 50 analysts tracked by FactSet who cover Block’s stock, 36 have buy ratings, 11 have hold ratings and three have sell ratings, with an average price target of $89.33.
What else to watch for
Morgan Stanley’s James Faucette will be looking to see how the Cash App mobile wallet’s customer base is holding up in the current economy.
“There continues to be pressure on lower-income consumers (key part of Cash App demo) with [JPMorgan] reporting that deposits of lower-income consumers are normalizing (i.e. falling) to pre-COVID levels faster than the normalization of other income demographics,” he wrote.
Faucette noted that Block’s Cash App business has benefited from “strong network growth” recently, while customer inflows appear to have been roughly flat. “If inflows come under more pressure, that could begin to weigh on Cash App[‘s] top-line,” he wrote.
Susquehanna’s James Friedman, meanwhile, sounded more upbeat.
“After analyzing Visa debit volumes, American Express [small- and medium-sized enterprise] business volumes, and new business formation trends, we slightly raise our estimates for [Block],” he wrote in a note to clients earlier in February. “Cash App GPV [gross payment volume] and gross profit sound solid,” he said, though he trimmed his GPV expectations for the Square seller business.
Read: PayPal earnings ‘leave much to debate’ on a polarizing stock
RBC Capital Markets analyst Daniel Perlin will be looking for Block’s perspective on cost controls.
“[I]nvestors want to like this name, but the Ebitda [earnings before interest, taxes, depreciation, and amortization] upside in [fiscal year 2023] seems like it’s already in numbers and more certainly in buy-side expectations, so expense management commentary is going to play very prominently when they report,” he wrote.
