In its most recent earnings report, Block (SQ -1.69%) showed solid year-over-year growth. But, in this segment of "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 2, Fool.com contributor Brian Withers outlines a different way to look at the company's numbers that illustrates a bright future.
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Brian Withers: I want to explain why we shouldn't look at revenue for Block. Here's their results this quarter, for the three months ending December. This is revenue right here. They had about $4 billion in revenue and if you look through this, you have Cash App here, you have Square, and you've got Corporate and Other, and you look at the transaction subscription hardware revenue, and then Bitcoin (BTC -3.20%).
Bitcoin is half of this total. The Bitcoin volume moves around. The reason why Square/Block counts it as revenue is they actually buy Bitcoin for their members on the Cash App to use and transact. The gross profit for that is really tiny. Out of this almost $2 billion in revenue, they got $46 million in gross profit or around 2%, so that's part of why the company focuses so much on gross profit.
Let's look at how they did for gross profit. I like how they have year-over-year growth here, and in the white, they have a two-year compound annual growth rate. This is how they've done over the coronavirus, and you can look, they had a 47% year-over-year growth this year, and for the two years, it's a 50% average annual rate, so that's super impressive.
Brick splitting it down, Cash App on the left, Square, the seller segment on the right. You can see the same thing here, 37% year-over-year, and this is gross profit, remember, so this takes out that Bitcoin stuff. You've got 37% year-over-year growth for Cash App and the two-year compound annual growth of 90. That says that the Cash App is really slowing down and that really boosted gross profit during the coronavirus.
Then over here on the seller segment, being a year-over-year growth of 54% versus the two-year compounded annual growth rate of 32, which means that the seller segment is now accelerating as small businesses get back on their feet and we get out to retail outlets and do more shopping. That's why you want to look at the gross profit numbers and you can see these two segments split out.
I am still super excited about this company, these growth rates are tremendous, and as much as hype as they've done with this Block business, they are still highly dependent on their Cash App business and their original seller segment, so watch those two segments for the upcoming couple years.
