Investors have already heard from Visa Inc. V, Mastercard Inc., and American Express Co. AXP, which all signaled healthy consumer-spending trends.
Soon it will be Block Inc.’s SQ chance to give a read on the spending landscape. The company, which houses the Square seller business and the Cash App mobile wallet, is due to report earnings Thursday afternoon during a busy time for the payments universe, as rival PayPal Holdings Inc. PYPL is also on the docket.
Here’s what to expect when Block delivers its results.
What to expect
Earnings: Analysts tracked by FactSet expect Block to report adjusted earnings per share of 23 cents, down from 37 cents a year before. On Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate calls for 24 cents in adjusted EPS.
Revenue: The FactSet consensus calls for $4.5 billion in revenue for Block’s third quarter, up from $3.8 billion a year before. However, analysts tend to look past Block’s headline revenue number since it’s heavily influenced by bitcoin revenue, which carries very little margin.
Instead, Wall Street focuses more on Block’s gross profit, and on that metric, the FactSet consensus models $1.5 billion, up from $1.1 billion a year before.
Stock movement: Block shares have gained following three of the company’s last five earnings reports. The stock has lost about two-thirds of its value so far this year, as the S&P 500 SPX has shed 21%.
Of the 46 analysts tracked by FactSet who cover Block shares, 31 have buy ratings, 12 have hold ratings, and three have sell ratings, with an average price target of $98.03.
What else to watch for
Comments from Mastercard MA bode well for Block’s seller results, according to Barclays analyst Ramsey El-Assal.
He noted that Mastercard executives called out strength in the airline, hotel, and restaurant categories. “Seller should see tailwinds from restaurant spending,” El-Assal wrote of Square’s business.
He’ll also be watching for Cash App trends, noting that he’s been “encouraged” by third-party data indicating that app downloads may have been up 15% from a year earlier during the third quarter.
Bank of America’s Jason Kupferberg recently wrote that “performance of the Cash App business remains the most important driver of the stock, and the biggest source of controversy.”
He noted that Block’s management gave an update on August trends at an investor conference, but the company was “more explicit for Square than Cash App, which limits the visibility” into gross profits for the Cash App. (Square is now the name of the company’s seller business.)
One thing on his Block wish list is a more forthcoming approach to guidance.
“We appreciate that the macro backdrop continues to see elevated cross-currents, which makes forecasting more challenging,” he wrote. “However, SQ remains the only payments company we cover that has not yet reinstated any form of top-line guidance since the start of the pandemic.”
Evercore’s David Togut is feeling bearish headed into the report. While he already rated Block’s stock at underperform, he added it to his “tactical underperform” list in a Wednesday note to clients.
“As SQ reigns in still-outsized growth in operating expenses, the company may struggle to sustain the rapid pace of innovation that drove superior top-line gains for Cash App and SQ Seller,” he wrote. “Unlike Cash App, SQ Seller does not enjoy substantial competitive advantages and cannot afford to slow new product introductions, in our view.”