After the U.S. stock market closed on August 1st Beijing time, the American version of "Alipay" Block (SQ.US) released its financial report for the second quarter of 2024. Overall, although the growth of the Square segment slowed down and the Bitcoin business declined compared to the previous quarter, the revenue was slightly below expectations. However, due to strict cost control, the company squeezed out profits slightly higher than expected. The key points are as follows:

1. The cornerstone segment of the company— the growth of the Square segment is slowing down. This quarter, revenue was $1.73 billion, about $30 million less than market expectations, with a year-on-year growth rate of only 2.8%. Despite the impact of the adjustment in afterpay calculation, the quarter-on-quarter growth rate slowed by 1.2 percentage points, reflecting significant growth pressure. In terms of key operating indicators, the payment volume within the Square ecosystem was approximately $58.4 billion, an 8% year-on-year increase, with a 1% quarter-on-quarter slowdown. The growth rate has been slowing down for five consecutive quarters, indicating a weakening trend.

2. Cash App's growth is relatively stable. Excluding the Bitcoin business, the Cash App segment's revenue this quarter was $1.52 billion, higher than the expected $1.47 billion, with a year-on-year growth rate of 30%, consistent with the previous quarter. Looking at the business segments, the Cash App's GPV scale continued to shrink, declining by 24% this quarter, leading to a similar drop in payment fees within the Cash App segment. Subscription service revenue this quarter was $1.42 billion, a 38% year-on-year increase, slightly accelerating by 1 percentage point compared to the previous quarter, maintaining relatively strong growth (but with the impact of changing the proportion of Afterpay revenue recognition from 50% to 100%), thereby sustaining the relative growth of the Cash App segment.

In terms of key operating indicators, the inflow amount of Cash App this quarter remained roughly stable at $71 billion, and the year-on-year growth rate also slowed by 2 percentage points to 15% due to the higher base. Overall, Cash App's growth is relatively stable, but there are signs of a slowdown.

3. In terms of overall performance, the total revenue of Block this quarter was $6.16 billion, an 11% year-on-year increase, slightly lower than the market's expected $6.31 billion. Excluding the volatile Bitcoin business, the core revenue was $3.54 billion, a 13% year-on-year increase, largely in line with expectations.

The company's most closely watched indicator— gross profit this quarter was $2.23 billion, slightly higher than the market's expected $2.19 billion. Gross profit increased by 19.7% year-on-year, with a quarter-on-quarter slowdown of about 2.5 percentage points, but still higher than the revenue growth rate. The gross profit margin reached 36.3%, an increase of about 1.1 percentage points quarter-on-quarter.

Looking at the segments, the gross profit margins of each segment all declined quarter-on-quarter, with Cash App's actual gross profit better than the conservative expectations, while the gross profit of the Square segment was slightly below expectations.

4. From a cost perspective, using the total gross profit growth of 19.7% as a benchmark, Block's total operating expenses this quarter decreased by 4% year-on-year. Specifically, the company's management and marketing expenses decreased by 14% and 6% respectively year-on-year, with only research and development expenses increasing by 3%. In addition to the "inevitable R&D investment," the company remains very cautious about expense investment. Mainly due to strict cost control, Block achieved an operating profit of $310 million this quarter, exceeding market expectations by about 13% or $270 million.

5. Slightly raise full-year profit guidance: For the third quarter of 2024, Block's adjusted EBITDA guidance midpoint is $680 million, slightly higher than the expected $670 million. The guidance indicates a 17% year-on-year increase in gross profit, slightly slower but basically in line with market expectations.

Furthermore, the company has raised its guidance for full-year 2024 gross profit and adj. operating profit by $130 million and $150 million respectively (equivalent to 10%).

Dolphin Research's Viewpoint:

From the performance of the quarter, the most significant highlight is the additional profit squeezed out, about 10% higher than expected, due to cautious expense investment. However, the core operating indicators of both the Square segment and the Cash App segment are generally showing a continued slowdown trend. We believe the company's biggest problem at the moment is that as a niche leader, it has not been able to demonstrate sustained and stable high growth. Revenue scale (excluding the Bitcoin business) continues to hover around a few billion dollars, mainly relying on cost control to squeeze out incremental profits in the low billions, which is too "stingy."

Dolphin Research believes that for the company to have a better narrative and investment logic, and to clearly break through the current market value range, it needs to see a leap in revenue scale, demonstrate higher economies of scale, bring higher profit margins, and show more significant growth.

Here is a detailed review :

II. Square's growth continues to slow, and the pressure becomes more apparent

The company's cornerstone segment— Square business, achieved revenue of $1.73 billion this quarter, about $30 million less than market expectations, with a year-on-year growth rate of only 2.8%, although the year-on-year growth rate is low due to the exclusion of 50% of Afterpay revenue from the Square segment in 4Q23, the 14% quarter-on-quarter growth rate is also weak compared to the same period last year at 15.7%. Looking at specific business segments:

1) Transaction fee revenue this quarter is about $1.6 billion, with a 7% year-on-year growth, continuing to slow down by 2 percentage points from the previous quarter;

2) Including subscription service revenue such as SaaS software services and fund loans, revenue this quarter is $320 million, a 15% year-on-year decrease, widening by 2 percentage points.

Another key indicator— total merchant payment volume (including Cash App channel) is about $62 billion, with a year-on-year growth rate also decreasing by 1 percentage point to 5%.

The C2B payment amount completed through the Cash App channel is approximately $3.6 billion, a 24% year-on-year decrease from approximately $4.7 billion in the same period last year, and the progress of Cash App Pay payments is not smooth.

In terms of the proportion of Square merchants classified by scale, in this quarter, the proportion of large merchants with annual payment amounts of $500k and above increased by 2.1 percentage points compared to the previous quarter, showing significant growth. However, the proportion of medium-sized merchants (GPV between $125k and $500k) decreased by 0.5 percentage points. Overall, the proportion of medium and large merchants increased by 1.6 percentage points this quarter.

Another major strategic direction - the progress of expanding overseas business is steadily advancing. In this quarter, the gross profit contribution from overseas for the Square segment reached $121 million, accounting for 13% of Square's overall gross profit, remaining flat on a quarter-on-quarter basis but increasing by 2 percentage points year-on-year.

II. Cash App's growth is relatively strong

Excluding the Bitcoin business, the Cash App segment achieved revenue of $1.52 billion this quarter, higher than the expected $1.47 billion, with a year-on-year growth rate of 30%, consistent with the previous quarter. Looking at the detailed business segments:

1) The C2B payment processing fee income of Cash App was $99 million, continuing to shrink in scale, with a 26% year-on-year decrease, similar to the decline in Cash App GPV.

2) The subscription service revenue, mainly from co-branded bank card business, instant withdrawal service, and Afterpay business, was $1.42 billion this quarter, with a 38% year-on-year growth, slightly accelerating by 1 percentage point compared to the previous quarter, including the positive impact of 100% consolidated Afterpay revenue.

3) The Bitcoin business, which contributes the most to revenue, had revenue of $2.61 billion this quarter, a 4.4% decrease from the previous quarter, and a narrowed year-on-year growth rate of 9%.

Key operating data shows that as of the end of this quarter, the monthly active transaction volume of Cash App was 57 million, flat compared to the previous month. The monetization rate slightly increased to 1.53% month-on-month. The inflow amount of Cash App this quarter remained roughly flat at $71 billion.

III. Gross profit growth outpaces revenue

Combining all businesses, the total revenue of Block this quarter was $6.16 billion, an 11% year-on-year increase, slightly lower than the market's expectation of $6.31 billion. Excluding the volatile Bitcoin business, the core revenue was $3.54 billion, a 13% year-on-year increase, largely in line with expectations.

The company's most closely watched indicator— gross profit this quarter was $2.23 billion, slightly higher than the market's expectation of $2.19 billion. Gross profit increased by 19.7% year-on-year, with the growth rate slowing by about 2.5 percentage points compared to the previous period, but still significantly higher than the revenue growth rate. The gross profit margin reached 36.3%, an increase of about 1.1 percentage points compared to the previous month.

Looking at the segments:

1. The Square segment achieved a gross profit of $920 million, a 3.8% year-on-year increase, not significantly outpacing the revenue growth rate;

2. Excluding the Bitcoin business, the Cash App segment achieved a gross profit of $1.23 billion, a 33.3% year-on-year increase, slightly outpacing the segment's revenue growth. The actual gross profit was slightly higher than expected by 4%; although the gross profit margin decreased by 0.5 percentage points compared to the previous month, it was still 0.2 percentage points higher than expected;

3. The Bitcoin segment also achieved a gross profit of $67 million this quarter, slightly higher than the market's expectation of $62 million;

IV. Strict cost control leads to higher-than-expected profits

From an expense perspective, with total revenue (ex. BTC) growing by 13% year-on-year and total gross profit growing by 19.7%, the company's total operating expenses this quarter decreased by 4% year-on-year, demonstrating effective cost control alongside strong gross profit growth.

Upon closer examination, the company's management and marketing expenses decreased by 14% and 6% year-on-year, respectively, with only research and development expenses increasing by 3% year-on-year. Similar to other tech companies, apart from the research and development expenses "forced" to keep up with technologies like AI, enterprises remain quite cautious in other expense outlays.

Ultimately, under GAAP standards, Block achieved an operating profit of $310 million this quarter, exceeding market expectations by about 13% or $270 million. Strict cost control contributed most of the profit that exceeded expectations.