Metric analysis

Block’s turnover is not the right metric for investors to watch

In its latest earnings report, Block ( BECAUSE -5.95% ) posted solid year-over-year growth. But, in this segment of “3 Minute Stocks Updates” on Motley Fool Live, recorded on March contributor Brian Withers describes a different way of looking at the company’s numbers that illustrate a bright future.

Brian Wither: I want to explain why we shouldn’t be looking at Block’s earnings. Here are their results this quarter, for the three months ending in December. It’s income here. They had about $4 billion in revenue and if you look at that, you have Cash App here, you have Square, and you have Corporate and Other, and you look at transaction subscription hardware revenue, and then Bitcoin ( BTC 0.54% ).

Bitcoin accounts for half of this total. Bitcoin volume is moving. The reason Square/Block considers it income is that they actually buy Bitcoin for their members on the Cash app to use and transact. The gross profit for this is truly miniscule. Of that nearly $2 billion in revenue, they got $46 million in gross profit, or about 2%, which is part of why the company is so focused on gross profit.

Let’s look at how they did for gross profit. I like how they have year-over-year growth here, and in white they have a two-year compound annual growth rate. That’s how they’ve done on coronavirus, and you can look, they’ve had 47% year-over-year growth this year, and for the two years, that’s an annual rate average of 50%, so it’s super impressive.

Brick dividing it, Cash App on the left, Square, the seller segment on the right. You can see the same here, 37% year-over-year, and that’s gross profit, remember, so that’s removing that bitcoin stuff. You have 37% year-over-year growth for Cash App and 90 compound annual growth over two years. This means that Cash App is really slowing down and it has really increased gross profit during coronavirus.

Then here on the seller segment, that’s 54% year-over-year growth from the two-year compound annual growth rate of 32, which means the seller segment is accelerating now as small businesses get back on their feet and we get out into outlets and do more shopping. That’s why you want to look at the gross profit numbers and you can see these two segments separate.

I’m still very excited about this business, these growth rates are huge, and despite the hype they’ve done with this Block business, they’re still very dependent on their Cash App business and their original seller segment , so watch those two segments for the next two years.

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