Block reported better-than-expected first-quarter earnings, leading to a surge in their stock price by over 7%. The company exceeded analysts’ estimates with earnings per share of 85 cents compared to the expected 72 cents and revenue of $5.96 billion compared to the expected $5.82 billion. Block, formerly known as Square, saw a 22% increase in gross profit to $2.09 billion and reported a net income of $472 million, or 74 cents per share, which was more than quadruple the previous year’s net income.
The company’s popular Cash App business reported $1.26 billion in gross profit, a 25% increase from the previous year. Cash App Card monthly active users reached 24 million in March, with a total of 57 million monthly transacting actives for Cash App. Block, led by Jack Dorsey, is also focused on integrating Afterpay, the buy now, pay later company it acquired for $29 billion in 2021. Despite some struggles by Afterpay following the merger, Block is working on streamlining operations and improving performance.
In a note to shareholders, Dorsey addressed the company’s dedication to Bitcoin, stating that less than 3% of resources are allocated to bitcoin-related projects. He explained the company’s belief in the need for an open protocol for money and how bitcoin can help serve people around the world faster. Block has invested in bitcoin for investment purposes and has seen significant growth in its bitcoin holdings, with a $220 million investment growing to $573 million by the end of the first quarter.
However, Block faced setbacks when its shares dropped 8% following reports of a federal probe into the company’s compliance practices. Allegations suggested that transactions involving credit card transactions, dollar transfers, and bitcoin were not reported to the government as required. A former employee leaked information regarding breaches in know-your-customer and anti-money-laundering rules, as well as management ignoring these lapses. These allegations included both Cash App and the company’s Square point-of-sale technology, as well as international payments and potential breaches of sanctions.
Block has faced previous allegations of inadequate compliance practices, with a short-seller report last year claiming that the company allowed criminal activity to operate with lax controls and inflated Cash App’s transacting user base. While analysts see potential for fines or behavioral remedies following the federal probe, the company continues to focus on improving operations and strengthening compliance. Despite these challenges, Block’s strong performance in the first quarter has led the company to raise its outlook for the year and pursue growth opportunities in its various business segments such as Cash App and Bitcoin.
