Investors are punishing tech companies that show any weakness in their growth prospects. So they applauded Block when it posted fourth-quarter earnings Thursday that beat analysts’ estimates and gave an optimistic outlook for this year. Shares jumped more than 20% in after-hours trading, restoring almost half of the value the company lost in this year's choppy market.
Block saw some "moderation" in growth in January due to the omicron variant's impact on spending, but that turned around in February and expects further improvement in March and the second half of the year for Cash App, said Block CFO Amrita Ahuja in a call with analysts.
“As we look ahead to 2022, beyond the first quarter, we believe Cash App's year-over-year gross profit growth rate will improve in the second half of the year compared to the first half," Ahuja said. She added that the company expected to "sequentially grow gross profit each quarter across Cash App and Square throughout the year, assuming the macroeconomic environment remains stable.”
Block posted quarterly revenue of $4.08 billion compared to expectations of $4.04 billion and adjusted earnings per share of $0.27, beating FactSet expectations of $0.23 per share.
The company’s Square merchant business posted gross profit of $657 million, which was up 54% year over year, while its Cash App generated gross profit of $518 million, up 37% year over year. Gross payment volume was $46.3 billion in the quarter, up from $32 billion a year ago and meeting analysts' estimates.
Crypto trading on Cash App has emerged as a significant factor in revenue, though its profit contribution is small. Bitcoin revenue was $1.96 billion in the fourth quarter of 2021, up 12% year over year, but bitcoin gross profit was $46 million, or 2% of that revenue.
Block’s Square seller unit is continuing to push up-market, with mid-market sellers making up 27% of its gross payment volume in the fourth quarter.
Block’s Afterpay acquisition, which closed on January 31, ate into profits, but is expected to support earnings in coming quarters as "buy now, pay later" services are integrated into both Square and Cash App products. Afterpay is now available to Square sellers.