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-- 23.930 Block 22Q2 earnings review: Square and Cash app revenues grow fast; new growth pole emerges despite short-term losses
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$Block (SQ.US)$ announced 22Q2 results, with revenue of $4.4B, higher than the expected $4.351B; net loss of $208M, weaker than the expected net profit of $204M, YoY profit turning to loss, mainly due to the increased investment in R&D and sales expenses resulting in an upward revision of the expense ratio; earnings per share of $0.18. Oriental Securities lowered its price target to $126.38 and maintained a Buy rating.
$Block (SQ.US)$ announced 22Q2 results, with revenue of $4.4B, higher than the expected $4.351B; net loss of $208M, weaker than the expected net profit of $204M, YoY profit turning to loss, mainly due to the increased investment in R&D and sales expenses resulting in an upward revision of the expense ratio; earnings per share of $0.18. Oriental Securities lowered its price target to $126.38 and maintained a Buy rating.
Key takeaways:
1. Square and Cash app net revenue maintained YoY and QoQ growths; 2B and 2C are now equally important to Block.
Block 2Q22 achieved net revenue of $1.470B, up 28.80% YoY and 13.49% QoQ; net income attributable to equity was -$208M, turning from profit to loss YoY, and was the third consecutive quarterly loss. In terms of net revenue composition, the company's Square and Cash App ecosystem net revenues were $755M/$705M, +29.10% /29.09%YoY and +14.25%/13.03% QoQ, accounting for 51% and 48%, respectively. The company has gradually formed two ecosystems, 2B and 2C, which drive medium and long-term growth.
2. GPV maintained rapid growth; High growth in subscription value-added services drove the company's Cohort Economics model to gain momentum; Bitcoin business performance was weak but had limited impact on results.
In 2Q22, the company achieved GPV of $52.499B, up 22.58% YoY and 20.67% QoQ, driving net transaction fee revenue of $600M, up 10.56% YoY and 16.66% QoQ.
The company achieved subscription services revenue of $882M in 2Q22, up 57.02% YoY and 15.44% QoQ. Subscription services net revenues proportion reached 59.99% in 2Q22, after exceeding 50% in FY21. Value-added services play a key role in continuously unlocking user demand and value and driving the strength of the company's Cohort Economics model.
The company achieved net revenue of $41M from Bitcoin market making, down 24.14% YoY and 4.32% QoQ. The company's Bitcoin business continued to perform weakly due to the downturn in the cryptocurrency market, but its impact on earnings was relatively small given its low contribution.
3. The development of BNPL business as well as TBD and TIDAL ecosystems has been a top priority: short-term impact on performance, new medium- and long-term growth pole.
In 2Q22, the company's operating expenses increased to $1.683B, up 65.68% YoY and 10.62% QoQ, of which product development and sales expenses increased by 60.02% and 41.52% YoY, respectively, which became the main reason for three consecutive quarterly losses. However, considering the strategic importance of BNPL (Buy Now Pay Later) business which has become an effective bridge between Square and Cash app and a new growth pole brought by TBD and TIDAL, Oriental Securities is optimistic about Block's medium- and long-term development prospects.
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