Block's (SQ) second-quarter results are likely to top Wall Street's expectations amid "steady" growth in its Square business and continued momentum in Cash App, UBS Securities said Tuesday.
The payments company is scheduled to release results Aug. 3, with UBS projecting gross profit to increase 24% to $1.82 billion, which the brokerage said was 1% above Wall Street. UBS expects Square and Cash App's gross profit to rise 14% and 35%, respectively. Cash App allows people to send and receive money.
Square's gross profit growth is likely to decelerate "modestly," in line with broader consumer spending trends, UBS analysts, including Rayna Kumar said. The business' gross profit rose 16% in the prior quarter and 29% in the 2022 second quarter, the company reported in May.
"The Square business could be impacted by a broader slowdown in consumer spending, but can still deliver low-teens gross profit growth," the UBS analysts said.
Ongoing adoption of Cash App's products is expected to "stimulate solid" monthly transacting user and inflows per active expansion, helping drive mid-30-percentage gross profit growth, UBS said. "Cash App's growth algorithm remains resilient despite a deteriorating macro environment for consumers," according to the UBS note. Cash App's gross profit surged 49% in the first quarter and 29% in the 2022 second quarter.
Block's quarterly adjusted operating expenses have outperformed the company's outlook by 5% on average over the last year, the analysts said. The firm expects "similar" trends in the second quarter, projecting adjusted operating expenses of $1.52 billion, which could drive adjusted earnings before interest, taxes, depreciation, and amortization of $298 million.
For 2023, UBS expects adjusted EBITDA of $1.43 billion. "We think investors are anticipating another beat-and-raise on full year adjusted EBITDA," according to the analysts. The firm reiterated its buy rating on the Block stock.
The company's "aggressive pace of innovation should drive premium growth," the analysts said. Over the next three years, Block is expected to generate low-20-percentage gross profit compound annual growth rate at minimum, according to the note.
Stocks rose over 1% on Tuesday.
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