Blocks Bitcoin Mining, Decline in Retail Payments in Focus for Q1 Earnings

While shareholders are likely to weigh in on near-term weaknesses in its core retail payments business when it announces first-quarter earnings on Thursday, Block is investing further afield, trying to encourage bitcoin miners as they try to create an ecosystem that goes well beyond money transfers.

The decline in consumer spending in the US threatens to take a bite out of Block’s revenue from Square store terminals. Payment volume growth has fallen across companies in the sector, including industry giants VisaV and MastercardMA. Another point of interest will be profit growth for Block’s payment app, Cash App. Shareholders will seek updates on banking services offered through the Cash App following the launch of the savings account in January. The digital wallet business has only become more competitive following the introduction last month of Apple’s AAPL High Yield Savings Account.

“The company has performed quite well over the past year in terms of having spending discipline and achieving its profitability goals,” said Jason Kupferberg, a Bank of AmericaBAC analyst.

Sales are expected to come in at $4.6 billion, according to analyst estimates compiled by FactSet, up 16% from Q1 2022. The projected net loss for the quarter is $108 million, compared with a loss of $204 million in the same period period last year. On the adjusted basis used by analysts, which excludes certain costs, earnings per share are seen at 35 cents.

Block is trying to balance profitability with long-term ecosystem investments that are largely in the crypto industry, although the acquisition of rapper Jay-Z’s music streaming service Tidal falls under the same umbrella. Despite the ambitious vision, the company’s C-suite has indicated that such investments will not take up more than 2-3% of Block’s operating expenses, according to Kupferberg.

The acquisition of what Block described as “a large volume” of bitcoin mining chips from IntelINTC will help accelerate the company’s plans to build an improved open-source system for bitcoin mining, an energy-intensive process in which computers compete to solve complex mathematics. problems validating transactions on the currency’s blockchain and earning fees in crypto. Block is working on producing its own chips, but the Intel deal helps speed up the launch of the mining product.

Similar to how merchants who need a payment system can purchase a plug-and-play Square terminal at their local Best BuyBBY, Block plans to offer off-the-shelf crypto mining systems. Last month, the company announced the Mining Development Kit, a starter kit for developers to start experimenting with bitcoin mining and find ways to innovate in the sector. Block’s ambition is to provide an entire system for bitcoin mining, complete with the hardware and software necessary to lower the barrier to entry.

“Mining needs to be more distributed,” CEO Jack Dorsey wrote on Twitter in 2021, and announced that the company was considering entering the mining business. “The core job of a miner is to settle transactions securely without the need for trusted third parties. This is critical well after the last bitcoin is mined. The more decentralized this is, the more resilient the BitcoinBTC network becomes.”

The application-specific integrated circuits (ASICs) for mining are available from only a handful of semiconductor vendors, and Intel is exiting the business, according to a notice on its website last month. Producing ASICs is an expensive and long-term investment that requires expertise in software and hardware design. Last year, when Block announced it was moving forward with its own bitcoin mining plans, the company’s general manager of hardware, Thomas Templeton, outlined that making mining more accessible, decentralized and energy efficient were the main goals.

“A lot of the general enthusiasm around the crypto ecosystem has waned,” says Kupferberg. “In addition to that, Block has been quite vocal over the past year or so about carefully managing investments in initiatives that have much more dated payback potential and return on investment potential.”

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