Block Earnings: SQ stock pops 8% despite mixed quarter

• Block reported an EPS miss for Q4.
• SQ stock surged 8% to $80 in Friday's premarket.
• Block revenue rose 14% YoY and beat Wall Street consensus.
• CPE release on Friday may redirect markets.

Block (SQ) stock surged 8% in Friday's premarket as the market got excited over the payments firm's mixed results. The company formerly known as Square, and still headed by Twitter founder Jack Dorsey, reported fourth quarter adjusted earnings per share (EPS) of $0.22 on revenue of $4.65 billion. Wall Street had expected adjusted EPS of $0.30 on revenue of $5.59 billion. Still shares rose as the guidance for Q1 was in line with Wall Street expectations.

SQ stock may be unable to contend with the market's reaction to new inflation data on Friday however. The Personal Consumption Expenditures (PCE) index for January comes out at 8:30 AM EST and will likely trigger a broad sell-off if inflation remains above projections. Current consensus is for MoM core PCE at 0.4% and YoY core PCE at 4.3%. Likewise, if inflation comes in lower than expected, then expect SQ to retain its heights in the premarket and possibly even trader higher.

Block stock news: Subscription business steals spotlight

The high point of the earnings release, and likely the reason for the spike in Block stock, was the subscription segment. Services and subscription revenue came in at $1.31 billion, up nearly 70% over the previous year's period. Gross profit for that segment arrived at $1.07 billion. 

Block saw gross payment volumes of $53.16 billion, which climbed 15% YoY. Transaction revenue of $1.47 billion grew 13% YoY. Cash App produced $2.86 billion in revenue – 12% higher than a year ago. Much of that revenue came from sales of Bitcoin however. Cash App's gross profit of $848 million was much higher than the $518 million seen the year ago period.

"There are three principles guiding our investment framework," said Chairman and President Jack Dorsey. "Number one, ensure our investments are focused on customer retention and growth; number two, account for ongoing cost of the business, including stock-based compensation; and number three, utilize industry standard conventions that are simple to communicate and to understand."

Dorsey said Block would focus on keeping gross profit retention above 100% and following the Rule of 40 for adjusted operating income. The Rule of 40 in the case of Block would mean the company requires gross profit growth and adjusted operating margin taken together to sum to a figure of 40 or above.

Source: App Economy Insights

Block stock forecast

Block stock was already up about 15% year to date, so the stock has benefited from January's rally already. This makes it tougher to see SQ shares continuing to rally all that much. Until earnings, Block stock had been in a downswing. Now the recent floor at $71.90 becomes the new support level to count on. The Moving Average Convergence Divergence (MACD) indicator still shows SQ stock in a bearish crossover, so this makes it less likely for the rally to stick. 

The primary price targets for bulls will be $82.60, which harkens back to a year ago in February when it worked as support. Above there the February 2 high from earlier this month at $90 will be the next barrier standing in the way.

SQ daily chart