How Block Dazzled Wall Street

Wall Street reacted strongly to Block’s earnings report this week, driving the stock up by 20% the morning after the news broke. The company’s Q4 earnings handily beat analyst estimates.

How did Jack Dorsey’s company do it? For the payments company, formerly known as Square, there were four key elements at play: Cash App, Square, AfterPay and, surprisingly, bitcoin.

Cashing In on Cash App

Cash App reported $1.18 billion in gross profit, a 25% year-over-year increase. The payment service ended the year with 56 million monthly transacting actives. Maybe more importantly, Block’s note to shareholders announced its plans to continue using Cash App as an entry point into a full-fledged banking business, with the goal of becoming one of the top providers of banking services to U.S. households earning up to $150,000 a year.

“We see the Cash App Card as a gateway to our customers adopting Cash App as a primary banking solution,” the note said. “We believe the most direct opportunity for Cash App to drive meaningful top line growth is by converting our existing base of 56 million monthly transacting actives, who mostly use P2P and Cash App Card, into primary banking actives who deposit their paycheck into Cash App.”

Circling Square

The company’s flagship product, Square, generated gross profits of $828 million in 2023, an increase of 18% over the prior year. The shareholders’ note highlighted the potential synergies between Square and Cash App, emphasizing how these synergies could benefit both branches of the business.

“We see a considerable amount of Cash App customers buying from Square sellers,” the note said. “We believe there’s an opportunity to offer Square sellers the ability to customize profiles in Cash App, that allows for better discovery and ordering for customers—ultimately connecting them to new local businesses through our commerce offerings.”

Accelerating Afterpay

The company may have finally found a sensible direction for Afterpay, which has been somewhat of a headache since Block acquired it in 2021 for $29 billion. While the division posted quarterly losses throughout 2022, it made some strong strategic moves in 2023, such as partnering with Ikea on a buy now, pay later strategy. Now, Block wants to further integrate it with Cash App.

“Afterpay enables customers to buy now and pay later both in network and out of network (via single use payment cards) as well as discover merchants through the Afterpay app,” the shareholders note said. “Our focuses in 2024 and beyond will be: 1) further integrating Afterpay into Cash App, 2) continuing to scale merchant discovery in Cash App, 3) using Afterpay’s distribution to continue growing Cash App Pay and 4) leveraging Cash App Card to distribute BNPL (e.g. Afterpay powering BNPL on the Cash App Card).”

Banking on Bitcoin

Finally, Block reported that it had earned $207 million from its bitcoin holdings. By the end of the year, Block held approximately 8,038 BTC for investment purposes, valued at $340 million. Additionally, it made $66 million in gross profit on bitcoin sales through Cash App in Q4 alone—a 90% increase year over year.

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