SQ Stock Warning: Why a Closer Look at Block’s Q1 Earnings Is Alarming

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Not long ago, we warned that Block (NYSE:SQ) would release its earnings soon and that investors shouldn’t be too eager to buy SQ stock regardless of the outcome.

As you might expect, Block’s management attempted to put a positive spin on the company’s financial results. Yet, cautious traders should take a closer look and form their own conclusions. In the final analysis, Block still has issues that should make prospective investors think twice.

Three months ago, the Square and CashApp owner reported fourth-quarter 2022 earnings that missed Wall Street’s estimate. Block reported 22 cents of adjusted EPS while analysts had expected 30 cents.

So, did Block stage a huge comeback with its most recently announced quarterly results? Block’s management certainly saw the glass as half-full, but don’t make any judgments until you’ve seen the actual data, which isn’t entirely positive.

SQ Block $59.60

Block Cherry-Picks Positive-Sounding Data Points

It’s a common tactic during conference calls for a company’s management to focus almost exclusively on quarterly stats that sound positive.

With Block, surely it’s not happenstance that CEO Jack Dorsey and Chief Operating Officer and Chief Financial Officer Amrita Ahuja never mentioned the company’s first-quarter 2023 net income (or lack thereof) during the company’s prepared conference-call remarks.

Actually, Dorsey didn’t mention any specific quarterly financial data points at all. He left that task to Ahuja, who emphasized Block’s quarterly gross profit of $1.71 billion. That’s fine, but gross profit doesn’t tell the full story.

Block’s quarterly shareholder letter also made a big deal out of the company’s gross profit. Using that metric alone, financial traders could jump to the wrong conclusion. Sure, Block’s revenue increased somewhat on a year-over-year basis. Did this translate to any actual profits, though?

Don’yt Ignore These Problems with SQ Stock

We already mentioned that Block’s Q4 2022 EPS result fell short of Wall Street’s expectation. However, at least we could say that Block turned a profit during that quarter. This wasn’t the case in 2023’s first quarter, however.

Instead of only reading companies’ shareholder letters and listening to their conference calls, it’s a good habit to read quarterly reports that are submitted to the Securities and Exchange Commission. It’s definitely worthwhile to read Block’s Form 10-Q quarterly report for the first quarter of 2023.

In that Form 10-Q, you’ll discover that Block’s gross profit didn’t translate to a net profit in Q1 2023. Actually, Block incurred a net loss of $16.838 million, or 3 cents per share.

In other words, Block swung from a net profit in the previous quarter (albeit a disappointing one), to a net loss in Q1 2023.

Also, Block went from total comprehensive income of $27.429 million in the year-earlier quarter, to a total comprehensive loss of $68.797 million in the recently reported quarter. These are alarming trends, to say the least.

Don’t Be a Hasty Buyer of Block Stock

You might be tempted to invest in SQ stock if you only listen to what the company’s management has to say. Remember, though, that this can be a trap and hasty traders could quickly end up underwater.

There’s no need to fall into a trap if you get into the habit of reading SEC forms. These tell a fuller, and sometimes more troubling, story than a company’s press releases often will. So, be sure to conduct your due diligence on Block’s bottom-line stats.

Most likely, you’ll choose not to jump into the long side of the trade with Block stock.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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