Block Q2 earnings preview: can the momentum be preserved after shares rocketed 21% in July?

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Block is set to display a weaker quarter result in its next earnings release given all the macro headwinds during the second quarter of the year, but why did its share price soar 21% in July?

Source: Bloomberg

 

Indices Shares Afterpay Macroeconomics Technical analysis Block, Inc.

Hebe Chen | Market Analyst, Melbourne | Publication date: Monday 01 August 2022 

When is Block’s earnings date?

Block will reveal its Q2 earnings on August 4, 2022.

What to expect?

Block is set to display a weaker quarter result in its upcoming earnings release due to the macro headwinds during the second quarter of the year.

The company is expected to report EPS of $0.16, down 76% from the prior-year quarter. Revenue is anticipated to be $4.33 billion, down 7.46% from the previous year's quarter but slightly higher than Q1’s reported result.

What’s the key watch?

Earlier this year, the payments service provider Block acquired the Australian buy now, pay later provider Afterpay. The listing was kept on the ASX and renamed SQ2.

Afterpay contributed a $92 million gross profit in February and March, with $46 million of gross profit recognized in the Cash App and Square.

The second quarter will be the first full three months for Afterpay to operate and shine under the umbrella of Block. As a result, investors will be very keen to know how the global payment service provider delivered revenue and cost synergy with Afterpay’s technology and customer base.

Block’s profitability will be another key watch especially given that inflation pressure is deteriorating the margin for most of the businesses reported their earnings so far. According to Block’s Q1 earnings report, its gross profit grew 34% year-over-year to $1.29 billion, up 55% on a two-year compound annual growth rate (CAGR) basis.

Source: Block

Finally, the recent positive outlook from Block’s vital rivals in payments spaces—Apple and Google in their earnings report for Q2 2022 is likely to reflect positively on Block’s impending quarterly results.

Block share price: technical analysis

Since the early days of this year, Block’s shares have retreated to the tune of 57%. However, the sentiment has brightened up recently with shares gaining by 21.51% for July. This has outpaced the 6.69% gain across the S&P 500 and 14% increase for Nasdaq.

Looking at the Block's current valuation, investors seem optimistic about the payment service provider as its Forward P/E ratio is way ahead - approximately 75 times versus the industry average of 26 times.

From a technical point of view, a series of high lows connected since mid-June has notably printed an ascending trend line for the price to trade above its 20- and 50-days moving average. At the time of writing, the price has managed to conquer the $107 key resistance and bring the next challenge at $112 into view. Furthermore, an above-neutral RSI print together with a rising trading volume suggests a bull-biased near-term view for the share price of Block.

However, if the earning results turn out to be lower than expected, the current trend line, which is also in line with the 20-day moving average, should be viewed as imminent support.

Source: IG