Multiple revenue: what to expect from Square’s parent company

Investors have heard Visa Inc. V,
-2.02%,
Mastercard Inc. and American Express Co. AXP,
-1.77%,
all of which reported healthy trends in consumer spending.

Soon it will be Block Inc.’s SQ,
-0.22%
opportunity to read the spending landscape. The company, which is home to the business that sells Square and mobile wallet Cash App, is expected to report results on Thursday afternoon at a busy time for the payments universe, as rival PayPal Holdings Inc. PYPL,
-1.87%
also on file.

Here’s what to expect when Block delivers its results.

What to expect

Earnings: Analysts tracked by FactSet expected Block to report adjusted earnings per share of 23 cents, down from 37 cents last year. At Estimize, which uses projections from hedge funds, academics and others, the average estimate calls for 24 cents in adjusted EPS.

Income: The FactSet consensus forecast Block’s third-quarter revenue of $4.5 billion, up from $3.8 billion a year earlier. However, analysts tend to look beyond Block’s total revenue, as it is heavily influenced by bitcoin revenue, which generates a very small margin.

Instead, Wall Street focused more on Block’s total revenue, and by that measure, the FactSet consensus model was $1.5 billion, down from $1.1 billion last year.

Stock movement: Shares gained in bulk after three of the company’s last five earnings reports. The stock has lost nearly two-thirds of its value so far this year, as the S&P 500 SPX,
-0.68%
lost 21%.

Of the 46 analysts tracked by FactSet that cover Block’s stock, 31 have a buy rating, 12 have a hold rating and three have a sell rating, with an average price target of $98.03.

What else to look forward to?

Mastercard MA reviews,
-1.97%
bodes well for Block sellers’ results, according to Barclays analyst Ramsey El-Assal.

He noted that Mastercard executives called for strength in the airline, hotel and restaurant categories. “The seller should see the tailwinds from the restaurant spending,” El-Assal wrote of Square’s business.

It will also monitor App Cash trends, noting that it was “encouraged” by third-party data indicating that app downloads could increase 15% year-over-year in the third quarter.

Bank of America’s Jason Kupferberg recently wrote that “Cash App’s business performance remains the stock’s most important driver 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 blunt about Square than the Cash App, which limits visibility” into earnings. Gross Cash App. (Square is now the name of the company’s sales business.)

One thing on his Block wishlist is a more open approach to orientation.

“We appreciate that the macro backdrop continues to see elevated cross-currents, making forecasting more challenging,” he wrote. “However, SQ remains the only payments company we cover that has not returned any form of high-level guidance since the start of the pandemic.”

Evercore’s David Togut is feeling down as the report approaches. Although he previously rated Block’s stock as an underperformer, he added it to his “tactical underperformer” list in a Wednesday note to clients.

“While SQ reigns in still outsized operating cost growth, the company may struggle to maintain the rapid pace of change that drives maximum revenue for Cash App and SQ Seller,” it said. “Unlike Cash App, SQ Seller does not enjoy a significant competitive advantage and cannot afford to slow down the introduction of new products, in our view.”

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