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Block, Inc. (SQ)·Q4 2023 Earnings Summary

Executive Summary

  • Solid Q4 finish with scale and profitability: total net revenue $5.77B (+24% y/y), gross profit $2.03B (+22% y/y), Adjusted EBITDA $562M (2x y/y), Adjusted Operating Income $185M (from a loss y/y), and GAAP net income $178M as Bitcoin remeasurement gains offset restructuring charges .
  • Cash App remained the growth engine: gross profit $1.18B (+25% y/y), improving monetization to 1.48%, 56M monthly actives (+9% y/y), and strong BNPL/commerce traction (BNPL GMV $8.6B, Cash App Pay 3M MAUs) .
  • Square growth moderated but remained positive: gross profit $828M (+18% y/y); headwinds include slower GPV per seller, MKE decline, and Cash App Business GPV down 13% y/y; management emphasized product velocity (single Square app), platform upgrades, and go‑to‑market changes .
  • 2024 guidance raised materially vs prelim: AOI ≥$1.15B (prior $875M), EBITDA ≥$2.63B (prior $2.4B); Q1’24 guide: GP $2.00–$2.02B, AOI $225–$245M, EBITDA $570–$590M; Rule‑of‑40 reiterated for 2026 .
  • Catalyst framing: profitability inflection (AOI/EBITDA beat and FY24 raise), Cash App “bank the base” focus (2M paycheck deposit actives; new overdraft and 4.5% savings yield) and tighter BNPL/Cash App integration could drive estimate revisions and multiple support .

What Went Well and What Went Wrong

  • What Went Well

    • Profitability and cost discipline: Q4 Adjusted EBITDA $562M and AOI $185M both above guidance; FY23 Adjusted EBITDA $1.79B (+81% y/y) and Rule of 29 delivered on combined basis .
    • Cash App growth with better monetization: Cash App gross profit $1.18B (+25% y/y), monetization rate up to 1.48% (+9 bps q/q on price and Bitcoin) and 23M Cash App Card MAUs (+20% y/y) .
    • BNPL and commerce integration: BNPL GMV $8.6B (+25% y/y) with loss rate ~1%; Cash App Pay scaled to 3M MAUs and $2.5B annualized GPV; plan to distribute BNPL via Cash App Card .

  • What Went Wrong

    • GAAP operating loss from non‑core items: Q4 operating loss $131M driven by $132M TIDAL goodwill impairment, $70M severance from restructuring, and $34M lease impairment .
    • Square growth headwinds: U.S. discretionary softness and lower GPV per seller; manual keyed entry volumes continued to decline (now ~13% of GPV) .
    • Cash App Business GPV declined 13% y/y; management also flagged weather-related pressures on January Square GPV as a Q1’24 consideration .

Financial Results

MetricQ4 2022Q3 2023Q4 2023
Total Net Revenue ($B)$4.65 $5.62 $5.77
Revenue ex-Bitcoin ($B)$2.82 $3.19 $3.25
Gross Profit ($B)$1.66 $1.90 $2.03
Adjusted EBITDA ($B)$0.28 $0.48 $0.56
Adjusted Operating Income ($B)$(0.03) $0.09 $0.19
GAAP Net Income ($B)$(0.11) $(0.03) $0.18
GAAP Diluted EPS ($)—$(0.05) $0.28
Adjusted Diluted EPS ($)$0.22 $0.55 $0.45

Segment breakdown

MetricQ4 2022Q3 2023Q4 2023
Square Revenue ($B)$1.62 $1.98 $1.81
Square Gross Profit ($B)$0.70 $0.90 $0.83
Cash App Revenue ($B)$2.99 $3.58 $3.91
Cash App Revenue ex-Bitcoin ($B)$1.16 $1.16 $1.39
Cash App Gross Profit ($B)$0.95 $0.98 $1.18

KPIs

KPIQ3 2023Q4 2023
Total GPV ($B)$60.08 $57.49
Square GPV ($B)$55.69 $53.54
Cash App Business GPV ($B)$4.38 $3.95
Cash App Monthly Transacting Actives (M)55 56
Inflows per Transacting Active ($)$1,132 $1,137
Monetization Rate (%)1.43% 1.48%
Cash App Card MAUs (M)22 23
BNPL GMV ($B)6.7 8.6
BNPL Loss Rate (% of GMV)0.84% 1.00%
Cash App Pay MAUs (M)>2 3
Bitcoin Revenue ($B)2.42 2.52
Bitcoin Gross Profit ($M)45 66

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Operating Income ($M)FY 2024$875 ≥$1,150 Raised
Adjusted EBITDA ($M)FY 2024$2,400 ≥$2,630 Raised
Gross Profit ($B)FY 2024—≥$8.65 Introduced
Gross Profit ($B)Q1 2024—$2.00–$2.02 Introduced
Adjusted Operating Income ($M)Q1 2024—$225–$245 Introduced
Adjusted EBITDA ($M)Q1 2024—$570–$590 Introduced
Rule of 40 Target2026At least mid‑teens growth + mid‑20% AOI margin Reiterated Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2023)Current Period (Q4 2023)Trend
AI/tech for efficiency and growthPrioritized AI; launched seller AI features (Menu/Copy Generator) and team comms; focus on engineering productivity GenAI tool for customer‑facing teams to speed support/sales; AI cited as leverage for OpEx and product velocity Increasing emphasis
Cash App “bank the base”/Direct DepositGrowing financial services attach; DD and paper money deposits strong; inflows per active up 8% y/y Strategy centerpiece; 2M paycheck deposit actives; launched free overdraft and 4.5% savings yield for DD actives Accelerating
BNPL integration with Cash AppMoving BNPL fully into Cash App; GMV +22% y/y in Q2, +24% y/y in Q3 BNPL GMV $8.6B; plan to power BNPL via Cash App Card; discovery and commerce in Cash App Deepening integration
Square product/platform & go‑to‑marketVerticalized sales; platform unlocks; headcount cap; upmarket focus One Square app plan; platform work to close food/bev gaps; more experimentation, referrals/local sales Refocused execution
Compliance/regulatory in Cash AppLimited prior emphasis in callsHeightened focus to build trust as banking provider; investing in security, fraud/risk, support Elevated priority
Macro/seller trendsGPV per seller moderation; discretionary headwinds; acquisition stable U.S. GPV growth slower; MKE mix declining; Cash App Business GPV down 13% y/y Persistent headwinds

Management Commentary

  • “Cash App aims to become one of the top providers of banking services to households in the United States which earn up to $150,000 per year… We have a three part strategy: (1) Banking our Base (2) Move Up Market by Serving Families and (3) Build the Next Generation Social Bank.” .
  • “I want Square to be a leader in engineering and design again.” .
  • “We’re going to go back to having one app… called Square… features will dynamically shift based on the type of merchant you say you are.” .
  • “We are raising our full year guidance and now expect adjusted operating income of at least $1.15 billion… and adjusted EBITDA of at least $2.63 billion.” .
  • “In the fourth quarter… operating loss of $131 million was impacted by a goodwill impairment of $132 million, severance… $70 million, and lease impairment… $34 million.” .

Q&A Highlights

  • Product velocity and roadmap: Management expects faster shipping from platform work (e.g., pre‑auth for restaurants) and tighter focus; one‑app strategy for Square to simplify onboarding .
  • Direct Deposit adoption: Focus on trust, connected banking features, and Cash App Card as gateway; ~2M paycheck deposit MAUs (~3% of MTAs); new features like free overdraft and savings yield introduced .
  • OpEx discipline and AI leverage: Operating expense growth constrained by 12,000 headcount cap; integrating AI to increase engineering, design, sales, and support productivity .
  • BNPL distribution via Cash App Card: Embedding buy‑now‑pay‑later into Cash App Card to enable BNPL everywhere, alongside tighter Afterpay integration .
  • Square distribution and referrals: Greater experimentation with local channels and referrals; openness to bank/ISO partnerships; push to upmarket verticals .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q4 2023 using our estimates tool, but the SPGI mapping for SQ was unavailable at query time, so vs‑consensus comparisons are omitted. We will update if/when S&P Global data becomes available. [GetEstimates attempt failed: Missing CIQ mapping]

Key Takeaways for Investors

  • Profitability inflection at scale: Q4 AOI/EBITDA topped guidance; FY24 AOI and EBITDA raised materially—supports near‑term multiple resilience and potential upward estimate revisions .
  • Cash App remains the structural growth vector: higher monetization, growing card/BNPL/commerce engagement, and “bank the base” strategy broaden ARPU and LTV .
  • Square execution pivot: single app, platform upgrades, and more targeted go‑to‑market aim to reaccelerate U.S. seller growth; watch food/beverage feature parity and referral traction through 2024 .
  • BNPL synergy crystallizing: stronger BNPL GMV and plan to distribute via Cash App Card create a unique consumer commerce flywheel; loss rates remain within historical ranges .
  • GAAP noise vs underlying strength: Non‑cash impairment and restructuring charges obscured core profitability; underlying AOI/EBITDA trends positive .
  • Near‑term trading setup: Q1’24 guide implies continued AOI/EBITDA momentum; weather/macro can weigh on Square GPV early in the quarter, but Cash App growth offsets .
  • Medium‑term thesis: Delivering Rule‑of‑40 by 2026 hinges on Cash App banking adoption and Square’s product velocity—monitor Direct Deposit KPIs, monetization, and U.S. seller growth mix .