Shares in Square-parent Block plunged on Friday, though the financial tech company reported second-quarter earnings and revenue that topped estimates.
Business trends for SQ stock and its outlook heading into the second half of 2023 pressured Square.
Square earnings for the period ended June 30 were 39 cents per share on an adjusted basis, up 116% from the year-earlier period. Analysts had projected earnings of 36 cents a share.
Also, Square said net revenue rose 26% to $5.53 billion, including Cash App transactions for digital cryptocurrency Bitcoin. SQ stock analysts had predicted revenue of $5.1 billion.
SQ stock plunged 13.6% to close at 63.57 on the stock market today. Block reported after the market close on Thursday.
The Square Cash App helps individuals manage money and buy stocks and cryptocurrency. Some analysts are focused on growth for the Cash App debit card.
Cash App active monthly users reached 54 million in the June quarter, up slightly from 53 million in the March quarter.
Square Stock: Key Metric Raised
Financial analysts also view gross profit as a key metric for SQ stock. Gross profit for Cash App rose 37% to $968 million versus estimates of $935 million.
But overall gross profit growth slowed to 27%, or $1.87 billion, from 32% in the first quarter. Management forecast further third-quarter deceleration to 21% growth, Evercore ISI analyst David Togut said in a note to clients.
Cost-cutting boosted earnings before interest, taxes, depreciation and amortization, a key metric known as EBITDA. It jumped 105% to $384 million, handily beating estimates of $297 million.
Block said it expects $1.5 billion in adjusted EBITDA in 2023, including the $87 million beat in the first quarter. Analysts had called for full-year EBITDA of $1.36 billion.
In his note to clients, Oppenheimer analyst Dominick Gabriele said management commentary of July business trends worried some investors.
"Unfortunately, we think volume and gross profit trends in non-bank revenue drive stock reactions," he said. "Cash card attach rate likely missed consensus estimates."
Square Stock: Payment Volume Trends
He added: "Even as SQ raises their adjusted EBITDA 2023 guidance to $1.5 billion, we think investors view it as an indication of offsetting slowing gross profit growth."
Further, one second-quarter metric missed slightly. Gross payment volume from merchant customers rose 40% to $54.2 billion, just below estimates of $54.5 billion.
"We think the Street is excessively focused on Square gross payment volume growth," Bank of America analyst Jason Kupferberg said in a note. "This metric is important — it slightly missed in Q2 and second-half estimates will likely come down a touch. However, 2023 estimates for gross profit and (adjusted) EBITDA should be moving materially higher."
At Jefferies, analyst Trevor Williams said in a note: "We fully acknowledge that the absolute level of 12% Seller gross payment volume growth in Q2 and through July is unlikely to provide incremental excitement."
SQ stock had advanced 18% in 2023 heading into the Block earnings report. San Francisco-based Block's earnings included consumer lending firm Afterpay.
Meanwhile, SQ stock holds a weak Relative Strength Rating of 22 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
