Good morning, and welcome to Protocol Fintech. This Friday: Block’s earnings took a hit, Haun Ventures’ first lead venture, and Elon taps his crypto pals for the Twitter acquisition.
How to swallow a $29 billion deal
Block’s big bet on Afterpay is just getting started, but it’s becoming clear just how much is riding on the company’s $29 billion deal.
Block reported earnings Thursday that missed analysts’ expectations. But high hopes that the company’s integration of Afterpay will pay off, along with a fairly positive outlook for the second half of 2022, had investors largely shrugging off the earnings miss. Shares were up in early Friday trading after a steep drop amid Thursday’s market meltdown, before the company had even revealed its earnings.
Integrating Afterpay smoothly and in a way that boosts both the Square seller unit and the consumer Cash App unit could be a massive benefit for the company — but if it doesn’t do those things, it would be just as big of a downside.
Fintech is and isn’t like the rest of tech. Its stocks have been fairly well correlated with the rest of the tech industry, but the sector also has its quirks.
- On one level, the challenges fintech companies face are similar to those of the broader tech industry: inflation, the war in Ukraine, pandemic supply chain disruptions and the decline of growth stocks.
- Still, fintech companies can be especially affected by macro trends from inflation to consumer spending. PayPal, for example, was hit last quarter by macroeconomic headwinds.
- Companies such as Shopify — which also missed earnings expectations Thursday — also face challenges specific to ecommerce and changes in consumer spending.
- Block hasn’t seen a hit in consumer spending, said Block CFO Amrita Ahuja on a call with analysts Thursday: “Through April we have not yet seen a deterioration in overall consumer spending.” But, she added, Block is “continuing to watch the broader macro environment.”
“Buy now, pay later” is a bright spot for Block. The company is just starting to integrate Afterpay, which it recently bought.
- The integration of Afterpay is a massive challenge for Block, as is any merger of this size — and Block if anything faces bigger challenges since it plans to tightly integrate Afterpay into Square and Cash App.
- “We're still extremely early into this integration,” said Block CEO Jack Dorsey. “This is the biggest thing our company has ever done. And, you know, obviously, it definitely distracts a lot. But we've managed to perform through it.”
- For accounting purposes, Block split the results from Afterpay into Cash App and Square, reflecting how Afterpay has synergies with both units.
- Afterpay has already benefited, with 350,000 leads for Afterpay sellers from Cash App and 20,000 Square sellers having processed an Afterpay transaction. Block expects to offer Afterpay for in-store purchases soon, the company said.
And while crypto giveth, it also taketh away. Block’s earnings were hit pretty hard by changes in the world of crypto.
- Block’s crypto revenue dropped 51% from a year ago, a trend that has been seen across the industry. Cryptocurrencies have been on a general downtrend in recent months along with tech stocks, and transaction revenue tends to follow asset prices.
- Still, that didn’t stop Jack Dorsey from talking about bitcoin in the analyst call Thursday. It’s the topic he’s most passionate about.
It’s still hard to get one’s hands around Block. The company is a conglomerate of separate units: its original Square merchant seller unit; its newer, consumer-focused Cash App; the music service Tidal; the bitcoin development and funding unit Spiral; and its bitcoin moonshot unit, TBD. How these fit together is not self-evident, but the Afterpay acquisition, if executed well, at least solves the question of how Cash App and Square fit together. Afterpay provides credit and deals to consumers on the one hand and marketing and loyalty to merchants on the other, becoming the glue between Square and Cash App. That’s at least one less question weighing on the company.
— Tomio Geron (email | twitter)
A MESSAGE FROM THE CHAMBER OF DIGITAL COMMERCE
The DC Blockchain Summit is a one-day, premiere gathering of the most influential people who are focused on public policy action for digital asset and blockchain innovations. It will feature discussions with policymakers, innovators and technologists, including in-depth conversations with policymakers and regulators on the issues impacting the growing blockchain and cryptocurrency landscape. Special government rates available. Join us on May 24th!
On the money
Haun Ventures is leading a $50 million round for Zora, the first investment round it has led since its formal launch. Zora’s a protocol for building NFT marketplaces, and Haun previously invested in OpenSea, the biggest NFT marketplace.
Shopify missed earnings expectations, which wasn’t surprising given the post-pandemic online shopping landscape. The ecommerce company also announced the acquisition of Deliverr, its biggest purchase to date.
Floyd Mayweather has been accused of rug pulls — again. Online sleuths allege that Mayweather’s new project Mayweverse has direct ties to three rug pulls, and that the team behind the project has taken the proceeds and disappeared after minting concluded.
Elon Musk’s crypto pals are in on his Twitter acquisition. A total of 19 investors have already helped raise $7.14 billion, including big crypto players Binance and a16z.
The IMF is worrying about bitcoin adoption by the Central African Republic. The International Monetary Fund said that bitcoin’s adoption as legal tender presents a set of challenges that could be cause for concern.Overheard
U.S. House Rep. Stephen Lynch isn’t sure consumers understand that money kept in a digital wallet isn’t always protected like funds in a bank account. The question, he said at a task force hearing, is “who should be on the hook when a consumer has been tricked into transferring their hard-earned savings.”
Plaid CEO Zachary Perret wasn’t happy with the launch of Stripe Financial Connections, a competing service. “Wow! Jay, you took interviews with Plaid & asked probing questions multiple times over the past few years, and your team sent repeated RFP's (under NDA!) to us asking for tons of detailed data. I wish y'all the best with these products, but surprising to see the methods,” he tweeted in response to an announcement by Stripe’s Jay Shah. But he later deleted that tweet and said that he was “presuming positive intent.”
The U.S. Senate Banking Committee wants overdraft fees gone, and traditional banks might just have to do it to keep up with fintech competition. “There is a difference between offering a service that will win the hand and offering a service that will kick someone while they’re down,” Sen. Raphael Warnock said at a hearing.The chart
The competition to be the most crypto-friendly country is on. In Coincub’s recent rankings of nations by their crypto policies and activity, Germany, the U.S. and Singapore have traded off the top spot. A recent move by Germany’s large savings-bank sector to consider creating wallets for customers helped move it up recently. A large number of nodes and bitcoin ATMs in the U.S. helped keep it near the top.
A MESSAGE FROM THE CHAMBER OF DIGITAL COMMERCE
The DC Blockchain Summit is a one-day, premiere gathering of the most influential people who are focused on public policy action for digital asset and blockchain innovations. It will feature discussions with policymakers, innovators and technologists, including in-depth conversations with policymakers and regulators on the issues impacting the growing blockchain and cryptocurrency landscape. Special government rates available. Join us on May 24th!
Thanks for reading — see you Monday!