A rosier-than-expected outlook for growth for financial-tech services like Square and Cash App spurred a record rally in the stock price of their parent company,
Block’s shares rose 26% to $119.82 on Friday, the company’s biggest one-day percentage increase on record, after executives allayed investors’ worst fears that its businesses wouldn’t be able to prosper in the absence of stimulus checks, fees from the government’s small-business loan program and other pandemic-induced benefits.
Executives at Block told investors on an earnings conference call Thursday evening that it estimated that overall gross profit increased by one-third in January and February from a year earlier and that gross profit would rise in each quarter this year compared with the preceding three months.
That guidance helped Block arrest what had been a free fall in its share price in recent few months. Investor distaste for high-tech growth stocks like Block at the prospect of higher interest rates, combined with projected slowdowns at competitors like
PayPal Holdings Inc.,
contributed to a nearly 60% drop in the Block’s share price since August. That selloff erased roughly $75 billion in market value.
But Block provided analysts and investors with reasons not to be so downbeat. There were more than 44 million monthly active users of Cash App in December, up more than one-fifth from a year earlier. Volumes at Afterpay, the buy-now-pay-later company Block acquired in January, expanded by as much as 30% in February.
Nevertheless, Block’s shares are still down about 30% since the start of the year, and many analysts revised their 2022 earnings estimates lower after Thursday’s earnings call.
“It could have been a lot worse,” said D.A. Davidson analyst Chris Brendler in a research note. “The outlook is materially better than feared.”
Write to Peter Rudegeair at [email protected]
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Appeared in the February 26, 2022, print edition as ‘Block Rallies With Outlook on Growth.’