The Block Inc (ASX: SQ2) share price is down over 10% after the ASX payments share gave its June quarter update.
Block is the company that owns both Afterpay and Square.
Gross profit growth continues
The company revealed that in the second quarter of 2023, it made $1.87 million of gross profit, which was an increase of 27% year over year.
Square generated gross profit of $888 million, an increase of 18% year over year. Block’s cash app made gross profit of $968 million, which was a rise of 37% year over year. Both of these numbers were the strongest the company has seen over the last 15 months.
Square told investors that it had strong momentum with its banking products, which generated $167 million in gross profit, an increase of 24% year over year, thanks to Square Loans, ‘instant transfer’ and the Square debit card.
Is this why shares have been sent to chopping Block?
The payments business made an operating loss of $132 million, which was better than the $214 million operating loss in the 2022 second quarter, but significantly worse than the $6 million operating loss in the first quarter of 2023. The bottom line profit (or loss) is usually more important for the Block share price than revenue.
It achieved $25 million of ‘adjusted’ operating profit for the June quarter, this was better than the adjusted operating loss of $103 million in the June 2022 quarter, but worse than the $51 million made in the first quarter of 2023.
It was a similar story for the net profit – it actually made a net loss of $123 million in this quarter, better than the $208 million loss in 2022 Q2, but worse than the $17 million loss in 2023 Q1.
The one positive was that it achieved $384 million of adjusted EBITDA (EBITDA explained) in this quarter, which was up 105% year over year and up $16 million on the 2023 first quarter.
What to make of this update for the Block share price
The company seems to be doing well at expanding its market position in the US and Australia, but it’s not a great sign that profitability decreased even while gross profit increased.
Higher interest rates aren’t helpful for its revenue, costs or valuation. We can’t expect profit to rise every quarter, but this seems like a short-term backward step for the business. Ultimately I want to see that greater scale means greater profit for Block from here, which would then be good for the Block share price.