After its Cash App business did not show the typical first-quarter performance, Block Inc. is reducing its gross-profit outlook for the year.
Early in the year, when mobile wallet users transfer their tax refunds to the platform and then use the money, the Cash App business usually reaps the rewards. According to Chief Executive Amrita Ahuja, however, the company witnessed “more muted” spending on Cash App cards at the end of February and March this time. Additionally, customer inflows were less than anticipated.
These “watchful signs” caused Block (XYZ) to lower its full-year gross profit forecast from its previous estimate of $10.22 billion to $9.96 billion.
“We recognize we are operating in a more dynamic macro environment, so we have reflected a more cautious stance on the macro outlook into our guidance for the rest of the year,” Block stated in its letter to shareholders.
Block’s stock fell more than 18% during Thursday’s extended trading session.
Investors look at gross profit as a stand-in for revenue, and the company’s Cash App division failed to meet this metric in the first quarter. As opposed to the $1.42 billion FactSet average, Cash App’s gross profit was $1.38 billion.
According to Ahuja, discretionary spending categories like entertainment and vacation fared worse than non-discretionary ones like groceries and gas.
Block’s Square division, which produces hardware and software for retailers, did not exhibit the same symptoms of weakening. During the quarter, Ahuja stated, “we were pretty encouraged to see that we’d gained share across our key verticals, including our top-priority verticals,” which included food and beverage. Square reported “relatively consistent growth rates over this past quarter with what we’ve seen historically.”
To combine its different seller apps into a single point-of-sale system, the organization has worked on migration. Larger quick-service eateries have also begun joining its network.
“You see the depth of our catalog and the reach of our field-sales team playing out and winning sellers for us,” Ahuja stated.
The square gross profit was $898 million, which was more than the consensus estimate of $885 million.
For the first quarter, adjusted earnings before interest, taxes, depreciation, and amortization totaled $813 million, exceeding the FactSet expectation of $791 million.
Ahuja stated, “We’re obviously very focused on efficiency in our business,” adding that the company’s expectation for the remainder of the year dictates that margins should increase in comparison to the previous year.
