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Why is the Afterpay share price up 30 per cent?
The Block Inc CDI (ASX: SQ2) share price has rocketed today after the business announced its FY21 results overnight.
In early afternoon trade, the Block share price is up 34.77% to $156.40.
Block? Afterpay? Square?
Block, formerly known as Square, is a global payments business with divisions including Square, Cash App, Spiral, TIDAL and TBD54566975.
The company also bought Australian buy now, pay later market darling Afterpay in January.
Block share price soars after beating expectations
Key financial results for the year ending 31 December include:
- Revenue of US$17.66 billion, an increase of 86% year-on-year (YoY)
- Gross profit of US$4.42 billion, up 62% YoY
- Adjusted EBITDA of US$1.01 billion, up 114% YoY
- Net income of US$166 million, down 22% YoY
The strong financial results were primarily driven by growth in Cash App and Square’s merchant base.
Block benefited from the maturation of the prior year’s customer and merchant cohorts.
“We have seen strength in retention during recent years, with annual gross profit retention of greater than 125% for each of the past four years”
In simple terms, customers use and spend with the platform more each year.
This leads to growth in Block’s revenue and earnings before any contribution from new customers.
Cash App
Cash App is a digital bank account that allows customers to send and receive money, buy shares and trade cryptocurrency.
The division increased monthly transaction users to 44 million, a 22% increase on the prior year.
Customers were attracted by new features such as being able to lodge your tax return and transfer cryptocurrency for free.
Square
Square provides products and facilitates payments for merchants. You’ll recognise Square by the little white bricks that customers tap their card on.
The division’s merchant base increased its total transaction volumes by 45%, for which Block takes a clip of each transaction.
Square merchants are increasingly more engaged. Around 38% of current merchants use four or more of Square’s products, up from 10% five years ago.
What’s next for the Block share price?
The Block share price will be supported by the addition of Afterpay as of 1 February 2022.
“Together, we intend to enable Square sellers of all sizes to offer BNPL at checkout, offer Afterpay consumers the ability to manage their installment payments directly in Cash App, and give Cash App customers the ability to discover sellers and BNPL offers directly within the app”
The business has also continued its positive growth momentum from 2021 into January and February.
Square transaction value is up 35%. Meanwhile, Cash App’s gross profit is forecasted to increase, driven by transactions, customer engagement and deposits.
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