Block's Q3 earnings preview - Stock stands to gain from gross profit acceleration

[Afterpay, Cash App & TIDAL Front Row To NYFW Party]
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Block (XYZ [https://seekingalpha.com/symbol/XYZ]) is scheduled to announce Q3 earnings results on Thursday, November 6th, after market close, and gross profit acceleration can benefit the stock.

The consensus EPS estimate is $0.66 [https://seekingalpha.com/symbol/XYZ/earnings/estimates] (-25.0% Y/Y) and the consensus revenue estimate is $6.31B (+5.5% Y/Y).

Over the last 2 years, XYZ has beaten EPS estimates [https://seekingalpha.com/symbol/XYZ/earnings/eps-surprise-summary] 50% of the time and revenue estimates 38% of the time.

Over the last 3 months, EPS estimates have seen 5 upward revisions [https://seekingalpha.com/symbol/XYZ/earnings/revisions] and 18 downward revisions. Revenue estimates have seen 8 upward revisions and 16 downward revisions.

Last quarter, XYZ was surging after the parent of the Square system for merchants and Cash App boosted [https://seekingalpha.com/news/4481733-block-boosts-2025-gross-profit-guidance-after-q2-gpv-gross-profit-top-estimates] its guidance for full-year gross profit and issued a strong Q3 gross profit outlook.

The company's Q2 gross payment volume and gross profit topped Wall Street expectations, even though its adjusted EPS fell short.

Q2 gross profit climbed to $2.54B, exceeding the Visible Alpha consensus of $2.46B, from $2.29B in Q1 and $2.23B in Q2 2024.

The Cash App ecosystem generated gross profit of $1.50B grew 16% Y/Y, accelerating from 10% in the prior quarter. Square’s gross profit of $1.03B rose 11% Y/Y vs. 9% growth in Q1.

However, the stock closed the following trading session 4.50% lower at $73.39 as the markets digested the fact that gross payment volume for Cash App [https://seekingalpha.com/news/4481832-block-in-charts-gross-payment-volume-for-cash-app-continues-decline-in-q2] has continued to decline.

"Growth was slowing across the board, competition was eating into its core businesses, and management seemed more focused on rebranding than on building a durable moat," said [https://seekingalpha.com/article/4811751-block-pops-on-q2-earnings-real-test-coming] Seeking Alpha analyst James Foord after the Q2 earnings release, noting that Cash App remains the biggest driver.

"The company’s financial position is moderate, and its profitability remains volatile," said Foord.

Seeking Alpha's Quant Rating [https://seekingalpha.com/symbol/XYZ/ratings/quant-ratings] system sees the stock as Hold, considering factors such as valuation and estimate revisions. However, SA authors [https://seekingalpha.com/symbol/XYZ/ratings/author-ratings] and the Wall Street community [https://seekingalpha.com/symbol/XYZ/ratings/sell-side-ratings] grade the stock as Buy on average.

The stock has added ~59% in the last six months, and is trading ~2.40% higher from its previous close ahead of the Q3 earnings release.

"We believe that if Block can prove its 2H25 gross profit acceleration story with Borrow containing risk losses and the GTM initiatives resulting in continued new dollar volume growth, as well as provide greater visibility towards its target FY25 exit rate of rule of 39, investors could be more comfortable engaging with the stock," said RBC Capital Markets in a research note.

"We view the setups as currently tilting positively for XYZ," said the note.

Insiders are net sellers, with the company seeing 24 sell transactions against 5 open market buys.

Short interest stood at 3.92% of the total float as of October 15.

MORE ON BLOCK

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* Block: Grubhub Integration Aside, Headwinds Loom [https://seekingalpha.com/article/4830233-block-grubhub-integration-aside-headwinds-loom]
* Block: The Market Is Not Impressed And Neither Should You [https://seekingalpha.com/article/4827034-block-the-market-is-not-impressed-and-neither-should-you]