Jack Dorsey’s Block soars 25pc as it lifts guidance, cuts jobs
Block shares surged 25 per cent on the ASX on Friday after Jack Dorsey’s payments company said it would cut global staff by 1500 to keep a lid on costs and announced a surprise $1 billion share buyback.
The market also responded favourably to a lift in its full-year 2023 and 2024 earnings guidance and a commitment to hit a combined growth rate and profit margin of more than 40 per cent in 2026.
Block chief Jack Dorsey is being more disciplined on costs. Bloomberg
With its share price halving over the past 12 months, Block has been pressured by investors to reduce operating costs and lift transparency on guidance, which it produced in a third quarter earnings update on Friday.
The job cuts were flagged by The Australian Financial Review last month. Block said on Friday it would limit its overall staff levels at 12,000 and instate an “absolute cap” until its performance improved. This is 1500 people less than its current headcount of 13,500.
Block shares, which hit a low of $60.56 late last month, jumped by $16.27 or 25 per cent to $81.12 in late afternoon trading on Friday, their highest level since September. But they are still 10 per cent down on levels six months ago.
“Block increased its full year 2023 outlook and its significant growth in adjusted operating income expected in full year 2024 is causing the stock to move meaningfully higher,” said RBC Capital Markets analyst Daniel Perlin.
Block chief executive Jack Dorsey announced in February it aimed to be a “rule of 40” company, by targeting a combined growth rate and profit margin exceeding 40 per cent. The company had not put a timeline on this until Friday, when it said it would hit the target by 2026.
It will reinstate both quarterly and annual gross profit and profit guidance, and declared it expected to deliver $US430 million to $US450 million in adjusted EBITDA and $US40 million to $US60 million in adjusted operating income in the fourth quarter. Gross profit for the third quarter was $US1.9 billion, up 21 per cent year-on-year.
Its Cash App active monthly users grew to 55 million with gross profit up 27 per cent, as it ramped up lending to US customers. Block’s Square payments terminal division saw gross profit rise 15 per cent as it introduced more banking products for merchants. Block said Afterpay, which it bought in 2021, had been restructured and is helping to link Cash App and Square.
Block will repurchase $US1 billion in shares to offset some of the dilution from its share-based compensation scheme.
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