• 1Q24 revenue/adj. PATMI was in line with expectations at 24%/27% of our FY24e forecasts. 1Q24 revenue grew by 19% YoY, which was supported by strength in its Cash App segment. Adj. PATMI doubled YoY to US$543mn due to higher operating leverage.
• For FY24e, Block expects consolidated gross profit growth of 17% YoY to US$8.8bn (prev. US$8.7bn) driven by its Cash App segment led by a surge in active users and higher engagement. The company also raised its outlook for adj. EBITDA to US$2.8bn from US$2.6bn on cost-cutting measures.
• We upgrade to BUY from ACCUMULATE recommendation as we account for recent share price performance. We nudge our DCF target price higher to US$96.00 (prev. US$94.00) with an unchanged WACC of 7.1% and a terminal growth rate of 4%. Our FY24e revenue estimates remain unchanged while we increase our adj. PATMI by 3% to account for lower expenses. Catalysts for Block include continued margin expansion and Cash App’s ability to serve as a traditional bank account substitute for millions of lower-income and underbanked consumers.

The Positives

+ Cash App business sees strong growth. In 1Q24, Block’s Cash App segment, which offers peer-to-peer payment, banking, and investment services to individuals, generated revenue growth of 23% YoY to US$4.2bn (ex-bitcoin was up 18% YoY to US$1.4bn) and gross profit growth of 25% YoY to US$1.3bn. The growth was supported by a 7% YoY surge in monthly transacting active users to 57mn, of which 24mn (+20% YoY) used a Cash App debit card. In addition, inflows per transacting active user grew by 11% YoY to US$1,255, leading to wider adoption of its products and services, including ATM withdrawals, bitcoin investments, Cash App Borrow, and Cash App Pay.

+ Strength in Square segment. In 1Q24, Block’s Square segment, which enables merchants to accept payments, reported gross profit growth of 19% YoY to US$820mn (1Q23: 12% YoY) despite the company’s guidance for a slight moderation. The gross profit growth was supported by strength in its banking products (Square Loans and Instant Transfer) and international markets. Meanwhile, Square’s gross payment volume (GPV) grew by 9% YoY to US$50.5bn as consumer spending remained resilient.

+ Cost-cutting measures boost earnings. Block expanded its adj. net profit margin by 4% points YoY to 9%, while adj. PATMI more than doubled to US$543mn. This was mainly because the company continued to focus on improving cost efficiencies through measured hiring (headcount cap of 12,000) and reductions in corporate overhead expenses. Sales and marketing expenses fell by 11% YoY to US$444mn. We raise our FY24e adj. PATMI by 3% on higher operating leverage.

The Negative

– Nil