Block (SQ) stock surged 8% in Friday’s premarket as the market reacted to the payments firm’s mixed results for the fourth quarter. The company formerly known as Square, and still headed by Twitter founder Jack Dorsey, reported adjusted earnings per share (EPS) of $0.22 on revenue of $4.65 billion. Wall Street had expected adjusted EPS of $0.30 on revenue of $5.59 billion, resulting in an EPS miss. However, the guidance for Q1 was in line with Wall Street expectations, prompting the surge in SQ stock.
The high point of the earnings release, and likely the reason for the spike in Block stock, was the subscription segment. Services and subscription revenue came in at $1.31 billion, up nearly 70% over the previous year’s period. Gross profit for that segment arrived at $1.07 billion. Additionally, Block saw gross payment volumes of $53.16 billion, which climbed 15% YoY, and transaction revenue of $1.47 billion, which grew 13% YoY. Cash App produced $2.86 billion in revenue – 12% higher than a year ago, with much of that revenue coming from sales of Bitcoin.
Chairman and President Jack Dorsey said Block would focus on keeping gross profit retention above 100% and following the Rule of 40 for adjusted operating income. The Rule of 40 in the case of Block would mean the company requires gross profit growth and adjusted operating margin taken together to sum to a figure of 40 or above.
The Personal Consumption Expenditures (PCE) index for January comes out at 8:30 AM EST on Friday and will likely trigger a broad sell-off if inflation remains above projections. Current consensus is for MoM core PCE at 0.4% and YoY core PCE at 4.3%. If inflation comes in lower than expected, then SQ may retain its heights in the premarket and possibly even trade higher.
Block stock was already up about 15% year to date, so the stock has benefited from January’s rally already. This makes it tougher to see SQ shares continuing to rally all that much. Until earnings, Block stock had been in a downswing. Now the recent floor at $71.90 becomes the new support level to count on. The Moving Average Convergence Divergence (MACD) indicator still shows SQ stock in a bearish crossover, so this makes it less likely for the rally to stick. The primary price targets for bulls will be $82.60, which harkens back to a year ago in February when it worked as support. Above there the February 2 high from earlier this month at $90 will be the next barrier standing in the way.
Overall, Block’s fourth quarter results were mixed, but the company’s subscription segment stole the spotlight and helped to push SQ stock higher in the premarket. The PCE release on Friday may redirect markets, but if inflation comes in lower than expected, then Block stock may remain at its current heights or even trade higher. The recent floor at $71.90 is the new support level to count on, and the primary price targets for bulls are $82.60 and $90.
