Block (SQ, Financial) reported a robust Q1 earnings beat, propelled by strong performance in its Cash App and Afterpay segments, despite a slowdown in consumer spending affecting its core payment and commerce solutions. The company's strategic cost containment, especially in hiring, further bolstered its financial results, leading to a positive market response.
Cash App revenue surged 23% year-over-year to $4.17 billion, following a 31% increase in the previous quarter, with total inflows climbing 17% to $71 billion. The growth was supported by continual enhancements to the platform, including features similar to PayPal's (PYPL, Financial) Venmo. Notably, the Cash App Card, launched in 2017, has seen a 16% rise in monthly active users to 24 million in Q1. Transaction fees from this card have now surpassed instant deposit fees, becoming the largest contributor to Cash App's gross profit, which increased by 25% year-over-year to $1.26 billion.
Additionally, Block is enhancing its product synergy by integrating its buy now, pay later (BNPL) service, Afterpay, into the Cash App ecosystem. Recent tests allowed Cash App Card users to convert purchases into short-term loans, potentially increasing customer engagement and revenue. Despite initial skepticism, Afterpay's acquisition for $29 billion in February 2022 has shown promising growth, with its Gross Merchandise Value (GMV) rising 25% to nearly $7.0 billion.
While the Square segment experienced modest growth due to adverse weather and certain retail challenges, with Gross Payment Volume (GPV) up 9% year-over-year to $50.46 billion, the company's disciplined approach to expenses and workforce management has paid off. Operating expenses only rose 3% year-over-year to $1.8 billion, staying below the 12,000-employee cap, and contributing to a 22% increase in gross profit to $2.09 billion and an adjusted operating income of $364 million.
Overall, Block's focus on expanding its Cash App and Afterpay services while maintaining low operational costs continues to drive significant profit growth, with expectations set high for the remainder of FY24.
