Cash Up

1Q23 RESULT

Need To Know

• Strong EBITDA beat of ~37% (US$368m vs ~US$268m), although partially assisted by cost deferrals
• Cash App growth continues to be strong, unimpacted by recent short report
• FY23 EBITDA guidance upgraded only ~5% to US$1.36bn, with continued macro uncertainty

Block’s 1Q23 result was far above consensus, largely driven by strong Cash App growth, being the perfect response to shut down the recent short report from Hindenburg. Cash App gross profit was US$931m vs ~US$879m expected for the quarter and was up 49% on the pcp and the clear highlight of the result. 

Cash App growth was driven by new product innovations and strategy focussing on increasing deposits. Examples include increased benefits for those receiving their paycheque into their Cash App account (which rose 69% yoy), where they receive free ATM withdrawals, as well as the introduction of a Savings product, allowing customers to bucket their savings and use a ‘round up’ feature to either save, or automatically invest into bitcoin or stocks. This feature has already attracted 3m active users since its launch in January 2023. Cash App increased its monthly transacting active accounts by 15% yoy to 53m. Further, 38% of accounts also are monthly Cash App Card users, up from 33% in March 2022.

Square ecosystem growth was impacted by weaker macro conditions and a mix shift towards upmarket and more enterprise customers, partially impacting gross profit margins. Gross Payment Volume still rose 17% yoy, indicating continued market share gains. International expansion continues to gain traction, with international Gross Profit now representing 16% (US$122m), up from 13% in the prior year.

FY23 EBITDA guidance was lifted from US$1,300m to US$1,360m, which we continue to view as conservative, reflecting cautious commentary on the macroeconomic backdrop given the recent turmoil in the financial sector. For the month of April, Block saw gross profit for the group increase 24% on the pcp, which at a run-rate is above the ~21% that consensus has forecasted for 2Q23. 

Investment View

Block is clearly continuing to execute on its strategy and comments from management around profitability discipline should continue to provide positive momentum to the stock. Whilst the 1Q result was partially boosted by a timing difference on some expenses, the upgrade magnitude and continued growth rates are still above market expectations. We expect the company to continue providing conservative guidance and beating throughout the year and retain our Buy recommendation.