Block pulls back on expenses

The parent of Square is cutting $250 million in planned expenses for the year, after reporting another quarterly net loss on Thursday

As for second-quarter net revenue, Block reported that slipped 6% year-over-year to $4.4 billion, largely due to a drop in bitcoin revenue, per a shareholder letter detailing quarterly results. Excluding bitcoin, net revenue would have been up 34%.

As Block tries to steel itself for economic uncertainty, Ahuja said the company reduced spending on “experimental and less efficient go-to-market” activities and also slowed its pace of hiring. 

Block, led by co-founder Jack Dorsey, has cut operating expense plans by 8%, or $450 million, since the start of 2022, Ahuja said. Despite the cuts, operating expenses for the third quarter are expected to increase by $75 million compared to the second quarter, per the shareholder letter.

Expected operating expense base for Afterpay, the Australian buy now-pay later provider Block acquired this year, will be about $750 million for the year, Ahuja said. She noted Cash App and Square each have variable expenses and “discretionary levers we can pull” to stay nimble amid uncertainty. 

Looking ahead, Block intends on “bringing a similar level of rigor to how we think about the remainder of the year and 2023 as we enter into planning,” Ahuja said. “We have more discretionary [operating expense] levers across those three areas, as well as corporate overhead” that the company can explore dialing back if the environment warrants it, she added.

Although consumers have looked healthy and the company wants to capitalize on market opportunities, “we also recognize that the environment has changed, Ahuja said. Cutting spending on discretionary operating expenses, “particularly those that are less efficient,” show Block is focused on demonstrating profitability amid what could become a more volatile economic environment, she asserted.

Ahuja noted 2022 has been a year of “significant investment” for the company, with its $13.9 billion all-stock acquisition of Afterpay and investments in Cash App and Square. “Planning ahead for 2023, we intend on being purposeful with our investments,” she added.

Second-quarter revenue for the company’s buy now-pay later Afterpay unit rose 6% over the period last year, and gross profit dropped 2%, Ahuja said. Growth for Afterpay has been hampered by competition, spending shifts from online to in-person shopping and foreign currency volatility, Ahuja said.

Block is seeking to diversify Afterpay’s base by tapping Block’s pool of U.S. Square sellers, incorporating “high-ticket verticals and omni channel products,” she said.

By Caitlin Mullen on Aug 5, 2022
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