Block Inc – Cash App’s momentum remained strong May 9, 2023 281

PSR Recommendation: BUY Status: Upgraded
Target Price: USD91.00
  • 1Q23 revenue/adj. PATMI was within expectation at 25%/23% of our FY23e forecasts. Revenue growth of 26% was led by strong momentum in its Cash App mobile payments platform. Net loss improved to US$17mn driven by higher operating leverage.
  • Cash App gross profit is expected to grow by 35% YoY in April fueled by strong growth in its monthly transacting actives (MAUs) as well as increased adoption of its debit card.
  • We upgrade to BUY from ACCUMULATE recommendation after the recent decline in stock price. We maintain our DCF target price of US$91 (WACC 7.1%, g 4%) as our FY23e estimates remain unchanged. We believe Block is well-positioned to benefit from its diversified portfolio of consumer banking solutions to lower-income and underbanked demographic, resurgence of in-person activities, and ongoing shift to cashless payments.



The Positives

+ Continued momentum in Cash App. In 1Q23, Block’s consumer-facing Cash App segment reported revenue growth of 33% YoY to US$3.3bn (52% YoY ex-bitcoin) and gross profit growth of 49% YoY to US$931mn. This growth was mainly driven by growth in Cash App’s monthly active users (MAUs) (15% YoY to 53mn) and strong engagement led by adoption of the debit card. Additionally, Cash App benefited from strong in-flows driven by growth in monthly direct deposit actives.


+ Focused on expense controls. Operating expenses for 1Q23 grew 13% YoY to US$1.7bn compared with 45% YoY growth in 4Q22 and 70% in 1Q22. The slower operating expenses growth is mainly because the management remains focused on cost controls in FY23e including moderating its headcount growth to 10% (vs 46% growth in FY22) as well as careful sales and marketing spend. Net loss improved to US$17mn in 1Q23 compared with US$204mn in 1Q22.


The Negative

– Slowdown in Square segment GPV. In 1Q23, Square division’s gross payment volume (GPV) grew 17% YoY to US$46.2bn. The growth rate decelerated significantly from 33% in 1Q22 mainly due to weak trends in global e-commerce and cuts to consumer discretionary spending (particularly food/beverage and retail) amid inflationary pressures.


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