Block’s Bet on BNPL and Cash App Offsets Beating From Bitcoin

For Block, the parent company of Square, bitcoin’s been a drag on results, and Cash App has been a boon.

Block posted Q2 results that showed that the company’s movement to expand its ecosystem, linking sellers and buyers, is bearing fruit, even as growth may be slowing.

And in June, there were 47 million accounts that transacted on Cash App, up 18% year on year.

Chief Financial Officer Amrita Ahuja said on the call that “we’ve seen continued momentum in food and drink, which has delivered the fastest gross profit growth of any square vertical on a five year CAGR basis.”

Drilling down a bit into Cash App use, 33% of spend is on gas and utilities with roughly another third on food and groceries, with the remainder being spent at Big Box and discount retailers.

And as further evidence of the cementing ecosystem, she noted that when an active user has more of their friends and family using Cash App, “they have more reasons to come back and their retention often improves.” Retention was 31 percentage points higher for active users with a network size of four or more other accounts compared to those with a network size of one.

In the wake of the Afterpay deal that was consummated at the beginning of this year, the company’s BNPL platform contributed $104 million of revenue and $75 million of gross profit to Square in the second quarter of 2022.

CEO Jack Dorsey said on the call that the company is still in the midst of bringing Afterpay’s “discovery capabilities into our system” and that Afterpay is “the omnichannel tool in our ecosystem” that helps sellers grow their own top lines.

Overall, company-wide gross payment volume reached $52.5 billion, gaining from $42.8 billion a year ago.

At a high level, the company said that July volume growth for the core Square seller business would be lower than recent growth rates, at 18% for July, where the company had seen 25% growth in the June quarter. The news helped send shares down about 6% after hours.

Bitcoin’s significant price decline impacted revenues, overall. Bitcoin-related sales were down by more than a third, to $1.8 billion. The consolidated top line was $4.4 billion, down from $4.7 billion in the second quarter of 2021.

The percentage of gross payment volume (GPV) tied to mid-market sellers continued to grow, to 39% in the most recent quarter, up from 35% a year ago and 27% in the 2020 second quarter.

In June, there were more than 1 million monthly actives using Cash App Borrow, the company said.

While GPV for the company’s Square business grew 25% on a year-over-year basis in the second quarter, the company anticipates 18% growth on the metric for the month of July.

Subscription and services-based revenue was $1.09 billion in the second quarter of 2022, up 60% year over year.

Management noted on the call that Cash App Borrow is seeing momentum, with 1 million “actives” taking advantage of the short-term credit offering, with average loans at less than $200, paid back in about a month. Loss rates on loans are less than 3%, according to commentary on the call. With further commentary on credit quality, management said that 95% of BNPL loans are being paid on time.

As Dorsey told analysts: “We have a built-in network effect that is inherently natural to use cases that we want to see continue to grow — and we’re building an ecosystem around that.”