Shares of financial technology company Block (SQ +1.75%) sailed higher on Friday after the company reported financial results for the third quarter of 2023. In my opinion, the market isn't celebrating the financial results as much as it's celebrating the serious and urgent tone from co-founder Jack Dorsey in his letter to shareholders. As of 12:30 p.m. ET, Block stock was up 12% and is now up 23% for the week.
Dorsey makes serious promises to shareholders
Dorsey's opening statement was over 1,300 words, so it can't be handled in its entirety here. However, his promises can perhaps be summarized as follows: Block will show operational discipline like never before to unlock greater profitability in coming years.
NYSE: SQ
Key Data Points
Block showed growth in both its Cash App ecosystem and its Square ecosystem in Q3. The company's preferred profit metric is its gross profit. In Q3, Block had a gross profit of $1.9 billion, a quarterly record and up 21% year over year.
SQ Gross Profit (Quarterly) data by YCharts
When it comes to adjusted vs non-adjusted profit metrics, Block certainly prefers to adjust the numbers. Q3 adjusted operating income came in at $90 million -- its third consecutive quarter of positive results. And its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $477 million.
Non-adjusted profit metrics were negative. In fairness, however, they were close to breakeven and greatly improved year over year.
Laying out goals for 2023 and beyond
Dorsey's opening statement was about the long term for Block. It did give guidance for the upcoming fourth quarter. Specifically, it expects fourth-quarter EBITDA to grow 57% year over year to $440 million at the midpoint of guidance. But its guidance goes beyond Q4.
For 2024, Block's management expects its full-year EBITDA to grow roughly 44% compared to 2023.
In 2026, Block expects its financial results to adhere to the "rule of 40" -- where growth rates and margins combine to equal 40 or more. Management expects its gross profit growth rate to be in the high teens and its adjusted operating margin to be in the high 20s.
In summary, Block's management struck a serious tone regarding growth and profits and that is very encouraging for long-term investors. Now the company needs to go out and do what it's promised.
