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Block continues to focus on profitable growth
Block continues to focus on profitable growth, raises guidance, Shopify returns to Free Cash Flow growth after divesting logistics, and PayPal stock declines on lower operating margins
This is a crazy week, with a number of Fintech companies reporting their second-quarter results each day. In this newsletter, I will focus on three:
Block continues to focus on profitable growth, raises guidance,
Shopify returns to Free Cash Flow growth after divesting logistics, and
PayPal stock declines on lower operating margins
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Block Continues to Focus on Profitable Growth
Block Inc (NYSE: SQ), the parent company of Square, Cash App, and Afterpay, reported a 25% YoY growth in its second-quarter revenue to $5.53 billion. The company saw a 27% YoY increase in gross profit to $1.87 billion, driven by a 37% YoY and 18% YoY gross profit growth in its Cash App and Square businesses respectively. Block’s BNPL business, Afterpay, contributed $168 million in gross profit, representing a 12% increase from a year ago. The company reported a GAAP Net loss of $123 million and an Adjusted EBITDA of $384 million, which compares to a Net loss of $208 million and an Adjusted EBITDA of $187 million a year ago.
The company’s CEO, Jack Dorsey, reiterated the management’s focus on profitable growth, highlighting a pullback on hiring and marketing spend, as well as strong performance management. The company also decided to wind down operations in specific markets, including Cash App's Verse brand in the EU and its BNPL platform Clearpay in Spain, France, and Italy. These markets required substantial investments but did not achieve the anticipated growth and profitability targets. As a result of financial discipline, Block raised its 2023 Adjusted EBITDA guidance to $1.5 billion, up from the previous forecast of $1.3 billion.
Shopify Returns to Free Cash Flow Growth After Divesting Logistics
Shopify (NYSE: SHOP) reported better-than-expected second-quarter results, with revenue reaching $1.7 billion, up 31% from the previous year. The company attributed revenue growth to an increase in new signups and price adjustments for its services. Gross Merchandise Volume increased by 17% YoY to $55 billion, while Gross Payments Volume rose by 53% YoY to $31.7 billion. Shopify reported a GAAP operating loss of $1.6 billion, largely due to a $1.7 billion impairment charge related to the sale of its logistics business. Excluding the impact of this divestment, “operating income was positive for the quarter.”
For the third quarter, Shopify expects revenue growth at a “low-twenties percentage rate year-over-year”, and a 2-3% sequential improvement in gross margins to 49.3%, while keeping its operating expenses “flat to up slightly”. The company also reported a positive free cash flow of $97 million, compared with a negative free cash flow of $87 million a year ago, and now expects free cash flow in the third quarter to be “greater than the total [in the] first half of 2023” (which would be $183+ million). Despite the positive results, Shopify's shares dropped 5.43% in regular trading on Wednesday, but are still up +70% since the beginning of the year.
✔️ Shopify forecasts solid revenue growth on higher prices, more signups
✔️ Shopify Stock Drops After Earnings Top Estimates. Management Is Upbeat
✔️ Shopify Announces Second-Quarter 2023 Financial Results
PayPal Stock Declines on Lower Operating Margins
PayPal (NASDAQ: PYPL) reported its second-quarter 2023 results on Wednesday. Total payment volume rose 11% YoY to $376.5 billion, resulting in a 7% YoY increase in net revenue to $7.3 billion. The company's GAAP operating income was $1.1 billion, up 48% YoY and non-GAAP operating income was $1.6 billion, up 20% YoY. GAAP EPS was $0.92 compared to negative $0.29 in the second quarter of 2023, and non-GAAP EPS at $1.16 compared to $0.93 a year ago. The company expects full-year 2023 GAAP EPS to be $3.49 and non-GAAP EPS to be $4.95, representing a 67% YoY and 20% YoY increase respectively.
The company set aside more funds to cover potential losses from loans made to merchants, resulting in a decline in adjusted operating margin to 21.4%, down from 22.7% in the previous quarter. PayPal’s CEO, Dan Schulman, tried assuring investors that higher provisions for losses are expected to be a temporary issue and not a long-term concern, but the stock declined more than 12% following the earnings report. The company is also actively searching for a replacement for Schulman, who will be departing the company at the end of the year, and the narrowed pool of candidates includes “several outstanding executives.”
If you could go back in time and invest only in one company covered in today’s newsletter, you’d rather choose Shopify. Thus, Shopify stock is up 1,985% since its first day of trading, compared to +472% for Block, and 75% for PayPal.
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Group Creative Director - Afterpay
🇦🇺 Remote, Australia
🇺🇸 San Jose, CA, United States
🇺🇸 San Jose, CA or New York, NY, United States
Executive Protection Specialist
🇨🇦 Montreal, Canada
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Cover image source: Block
Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.