Why Block Stock Is Plummeting Today
Key Points
Block's sales and earnings missed Wall Street's targets in the third quarter.
Revenue performance came in far weaker than expected.
Block raised its full-year gross profit target, but higher costs in other areas and weak sales growth are driving sell-offs.
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Block (NYSE: XYZ) stock is selling off quickly in Friday's trading. The company's share price was down 9.5% as of 12:30 p.m. ET. At the same point in the day's trading, the S&P 500 was down 1%, and the Nasdaq Composite was down 2%.
Block published its third-quarter results after the market closed yesterday and posted sales and earnings that missed Wall Street's forecasts. While the company raised its forward guidance for annual gross profits, the improved target hasn't been enough to prevent a valuation pullback for the stock.
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Image source: Block.
Block stock sinks following Q3 miss
For the third quarter, Block recorded non-GAAP (adjusted) earnings per share of $0.54 on sales of $6.11 billion. Adjusted earnings per share came in $0.14 lighter than the average Wall Street analyst target, and revenue missed the consensus estimate by roughly $200 million. Sales in the quarter came in significantly weaker than anticipated and were up just 2.2% compared to the prior-year quarter.
The weak growth occurred despite gross payment volume (GPV) for its Square platform increasing 12% compared to the prior-year period. Along with general bearish momentum for the market today, the weak print on sales is causing a big sell-off for Block stock today.
What's next for Block?
On the heels of 25% year-over-year growth for gross profits from the company's Cash App service, Block raised its full-year gross profit forecast to roughly $10.243 billion -- good for growth of approximately 15% year over year. Meanwhile, adjusted operating income is projected to come in at roughly $2.06 billion, representing a margin of roughly 28% and annual growth of 28%.
While the company is seeing some significant margin improvements derived from artificial intelligence (AI) and other initiatives, weakness on the sales side and higher-than-expected spending in some categories could continue to pressure the company's valuation.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block. The Motley Fool has a disclosure policy.
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