Block Earnings Were a Whirlwind, and I am Not Sure how to Proceed
Three days ago, Block stock was up seven percent. I was pumped, and I was expecting another five percent or so from the coming earnings. Then, I got the notification at 4:06 that Block had reported earnings. I looked up their ticker on Google to see how the market was taking it in after-hours and saw that the stock was down 10 PERCENT. I was shocked, and I immediately pulled up the data. Here are my takeaways:
First, what a dramatic overreaction by the market. Net earnings were up 60% from a year earlier, great underlying numbers, gross profit rose 19% compared to a year earlier, and the company is maturing, dismantling its cryptocurrency and Tidal operations, both of which were childish fiction. They did miss on their revenue though, only pulling in 6% growth from a year earlier, and while this is worrying, I do not think it is worrying worrying. Things like EBITDA increasing 70% from a year earlier, beating expectations, sate some of my worries.
That said, six percent revenue growth from a company of Block’s size is…worrying. I want more top-line revenue growth from them. This would be a serious problem if I did not think they could fix this, but I believe that continued expansion of their Square services and of Cash App Borrow will garner increased growth. Also, things like this from reputable analysts lessen my fears as well:
“We view SQ’s 3Q results as relatively in-line, although 4Q guidance was slightly softer-than-expected (contrasting with recent quarters) and 2025 guidance was roughly in line (albeit we view the guide as conservative). While Square's US GPV growth decelerated sequentially, we were encouraged by guidance for a modest improvement in 4Q and further acceleration in 2025; SQ has made steady progress towards rectifying issues at Square (across product, reliability, onboarding, distribution). We raise out-year EPS estimates ~2% (reflecting higher gross profit growth), and increase our target to $94 (was $92)."
GPV growth means gross payment volume btw.
Rufus Hone’s (that analyst) report reflects what this most recent quarter was for Block, definitely not a home run quarter, but I do like that they raised their forecasts for the next quarters.
I am getting a bit worried about that position though. I bought Block for the first time in December of 2023, and I have continued to buy throughout the year. This is the first time that my faith in this company has wavered. We are approaching a year of holding this company, and I have a 12% unrealized gain. This is not bad at all, but I bought this company because I thought it could double in price. I still think that, to be honest, but like I said, I am worrying.
I do not believe this is baseless either. I want to see revenue growth, I want to see Square readers taking over every peer-to-business interaction, and I Cash App to be everything peer-to-peer transaction. With every passing minute, I feel more and more like selling completely out of my position (15% of my portfolio, 12% gain, owned for 11 months), and dumping it all into ServiceNow, a company I feel wildly confident about (10% of my portfolio, 20% gain, owned for 2 months), or a different company that will grow at a more satisfactory rate.
Which leads me into a smaller point. I feel like I need to reposition, rotate my portfolio. I think companies like Block and Disney, which make up about 30% of my portfolio just are not cutting it. I would not mind dropping one or both of these companies and switching for another, with Block closer to the chopping block, just because Disney is something I have been in for the long haul for a while, fallacious I know.
I just got a new stock screener, and I have recently been taking it out for a few spins, finding some interesting companies I hope to bring to the Pax Romana Capital audience very soon. Companies like Block and Disney that I have lost confidence in recently might find their way out on the street with immediacy.
