Block's potential for 'valuation squeeze' sparks downgrade of Square-parent's stock

Block stock drops after earnings, as Square’s parent company swings to a loss

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Shares of Block Inc. fell 6% in after-hours trading Thursday after the payment-technology company swung to a loss and projected that July volume growth for the Square seller business would be lower than what was expected in the second quarter when looking on a year-over-year basis.

The company, which somewhat recently changed its corporate name from Square, posted a net loss of $208.0 million, or 36 cents a share, whereas it logged net income of $204.0 million, or 40 cents a share, in the year-earlier period. On an adjusted basis, Block

earned 18 cents a share, down from 49 cents a share in the year-before quarter, while analysts had been modeling 16 cents a share.

Block’s revenue fell to $4.40 billion from $4.68 billion, reflecting a sharp decline in bitcoin

contributions in the latest quarter. Bitcoin revenue fell 34% to $1.79 billion in the second quarter.

Read: These companies hopped on the crypto train when times were booming. Which are exposed in a downturn?

Analysts tracked by FactSet had been expecting $4.33 billion in overall revenue for the quarter.

While bitcoin trading generates heavy revenue for Block, it comes with minimal profit, one reason why executives at the company and the analysts who cover the stock tend to look at Block’s overall gross-profit figures as a proxy for revenue. Gross profit came in at $1.47 billion for the latest quarter, up from $1.14 billion a year before, whereas analysts had been anticipating $1.48 billion.

Gross payment volume reached $52.5 billion, up from $42.8 billion a year before but below the FactSet consensus, which was for $53.2 billion.

Block generated $755 million in gross profit for its Square seller business, above the FactSet consensus, which called for $735 million.

While GPV for the company’s Square business grew 25% on a year-over-year basis in the second quarter, the company anticipates 18% growth on the metric for the month of July.

The company’s Cash App business saw gross profit of $705 million, up from $546 million a year before. Analysts tracked by FactSet were modeling $678 million.

Executives offered in the company’s shareholder letter that they anticipate Cash App gross profit to have grown on a year-over-year basis in July, “driven by growth in monthly transacting actives, engagement across our ecosystem, and inflows into Cash App.”

See also: Cash App users can now invest in stock and bitcoin with their spare change

Shares of Block have lost about two thirds of their value in the past 12 months, as the S&P 500

has fallen about 6%.

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