A Business That Looks Profitable on One Set of Books and Not the Other
Block's first quarter of 2023 is the clearest example yet in this backfill of the gap between GAAP and Adjusted EBITDA» actually mattering to how a reader should judge the business. Total net revenue grew 26% year-over-year to $4.99 billion, gross profit grew 32% to $1.71 billion, and Adjusted EBITDA nearly doubled - up 89% to $368.4 million from $195.4 million a year earlier. But the GAAP operating loss was still $(6.2) million and the GAAP net loss was $(19.3) million, continuing the streak of quarterly GAAP losses that has run through every quarter Afterpay has been on the balance sheet.
The improvement is real - the operating loss narrowed from $(226.8) million a year ago to just $(6.2) million, a $220.6 million swing - but it's worth being precise about what closed that gap. Bitcoin revenue increased $433.0 million year-over-year (up 25%), yet contributed only 3% of total gross profit in both periods; strip it out and total net revenue still grew a healthy 27%. The real driver of the operating-loss narrowing is expense discipline against a growing gross-profit base, not a swing in bitcoin's own economics - Block's own filing states gross profit generated from bitcoin transactions was flat at 3% of the total in both Q1 2023 and Q1 2022.
The Prescription
Block should keep pushing GPV»-adjacent operating leverage rather than chasing new product lines: product development spend grew 37% year-over-year to $626.9 million, faster than gross profit's 32% growth, and that's the single line item standing between this quarter's Adjusted EBITDA growth and a GAAP profit. What it should stop doing is layering new venture bets (TIDAL, TBD/DIEM-style crypto initiatives) into a P&L that hasn't yet proven it can convert its two core segments' gross-profit growth into consistent GAAP income - Cash App and Square together generated $1.70 billion of segment gross profit this quarter; Corporate and Other, the bucket that absorbs unallocated costs and non-core bets, is where the operating loss actually lives.
Key Financial Metrics
Q1 2023 vs. Q1 2022, consolidated, reported in USD
| Metric | Q1 2023 | Q1 2022 | YoY |
|---|---|---|---|
| Total Net Revenue | $4,990.1M | $3,960.6M | ✅ +26% |
| Gross Profit | $1,714.6M | $1,295.0M | ✅ +32% |
| Operating Income (Loss) | $(6.2)M | $(226.8)M | ✅ loss narrowed 97% |
| Net Income (Loss) | $(19.3)M | $(207.4)M | ✅ loss narrowed 91% |
| Adjusted EBITDA» | $368.4M | $195.4M | ✅ +89% |
| Free Cash Flow» | $262.1M | $188.2M | ✅ +39% |
| Balance sheet metric | Mar 2023 | Dec 2022 | Change |
|---|---|---|---|
| Cash and Cash Equivalents | $5,061.1M | $4,544.2M | ✅ +11.4% |
| Total Assets | $31,337.3M | $31,364.3M | ⚠️ roughly flat |
| Total Liabilities | $13,862.4M | $14,113.0M | ✅ -1.8% |
| Total Stockholders' Equity | $17,474.9M | $17,251.4M | ✅ +1.3% |
Free Cash Flow of $262.1 million (operating cash flow of $294.4 million less $32.3 million of capital expenditures) continues the recovery that began after FY2022's near-total collapse to just $5.1 million - a fourth straight quarter of improving cash generation, though still below the $713.5 million FY2021 delivered as a full year.
Block opens FY2023 with revenue up 26%, Adjusted EBITDA nearly doubled, and free cash flow continuing to recover - but the GAAP operating loss, while ten times narrower than a year ago, hasn't yet closed.
Segment Comparison: Cash App vs. Square vs. Corporate and Other
Q1 2023 vs. Q1 2022
| Metric | Cash App Q1 2023 | Cash App Q1 2022 | YoY | Square Q1 2023 | Square Q1 2022 | YoY |
|---|---|---|---|---|---|---|
| Segment Gross Profit | $931.2M | $623.7M | ✅ +49% | $770.3M | $661.2M | ✅ +16% |
Cash App
Cash App's segment gross profit grew 49% year-over-year, the fastest-growing line in the entire consolidated business again, continuing the pattern already established across every quarter of the 2021-2022 backfill. Bitcoin revenue sits entirely inside this segment ($2.16 billion of the segment's $3.27 billion total revenue), but as noted above it's a low-margin pass-through - the segment's real growth engine is the non-bitcoin financial-services suite (Cash Card, Borrow, direct deposit) that converts into actual gross profit.
Square (formerly Seller)
Square's segment gross profit grew 16% year-over-year - a real deceleration from the 30% full-year FY2022 pace reported in the prior post, though still solidly positive. GPV growth of 17.5% (see below) outpaced the segment's own revenue growth of 15%, a small but real sign of take-rate compression worth watching in subsequent quarters.
Key Operational Metrics
Q1 2023 vs. Q1 2022
| Metric | Q1 2023 | Q1 2022 | YoY |
|---|---|---|---|
| GPV | $51,117M | $43,504M | ✅ +17.5% |
| Bitcoin Investment Fair Value (period-end) | $228.7M | not disclosed at same detail this quarter | — |
The bitcoin investment's fair value of $228.7 million as of March 31, 2023 sat $126.2 million above its post-impairment carrying value of $102.5 million - the position had recovered meaningfully from the depths of the 2022 crypto crash covered in the prior backfill, though under the impairment-only accounting model still in effect this quarter (before ASU 2023-08 took effect), unrealized gains above the impaired carrying value still weren't recognized on the income statement.
Beyond the Usual
The Long-Running Texas Comptroller Tax Dispute No Longer Appears in This Filing
The $38 million Texas Comptroller assessment - open and tracked in every single quarterly and annual filing since it was first disclosed in Q3 2020 and still unresolved as of the FY2022 10-K - is absent from this quarter's contingencies disclosure entirely. The filing gives no explanation for the dispute's disappearance (settled, dropped, or reclassified as immaterial are all possibilities consistent with silence), which is itself worth flagging: a contingency tracked for over two and a half years across eleven consecutive filings doesn't usually just stop being mentioned without a stated reason, even when the reason is "resolved."
A $1.0 Billion Share Repurchase Authorization Is in Motion, With No Purchases Yet This Quarter
Block's 10-Q references an intended $1.0 billion share repurchase program as part of its liquidity discussion, the company's first buyback authorization referenced in this backfill. No shares were actually repurchased in Q1 2023 - the program was still being stood up - but it's a notable capital-allocation shift for a company that spent the 2020-2022 backfill entirely in growth-and-acquisition mode (TIDAL, Afterpay) rather than returning capital to shareholders.
Target Valuation Range
~2.5x EV/TTM Revenue at quarter-end - essentially flat with FY2022's ~2.7x close, sitting near the cheap end of this entire backfill's trading range. Neither clearly undervalued nor overvalued on this measure alone; the more interesting signal this quarter is the widening gap between GAAP losses (still present) and Adjusted EBITDA (nearly doubled), which the market appears to be pricing somewhere in between.
| Market cap → enterprise value | Q1 2023 (period-end) |
|---|---|
| Share price (period-end, Mar 31 2023) | $68.65 |
| Weighted-average diluted shares (Q1 2023) | ~602.2 million |
| Market capitalization | ~$41.3 billion |
| Total liabilities | $13.86 billion |
| Less: cash and cash equivalents | $5.06 billion |
| Enterprise value | ~$50.1 billion |
| Peer-multiple sanity check | TTM ending Q4 2022 | TTM ending Q1 2023 | Change |
|---|---|---|---|
| Enterprise Value | ~$47.3 billion | ~$50.1 billion | ✅ +6% |
| TTM Revenue | ~$17.53 billion | ~$17.85 billion | ✅ +2% |
| EV/Revenue | ~2.7x | ~2.5x | ⚠️ modest compression |
| DCF scenario (illustrative, EV/Revenue-multiple-based) | Key assumption | Implied EV | Implied share price |
|---|---|---|---|
| Bear | GAAP losses persist through 2023 and gross-profit growth decelerates toward high single digits; multiple compresses to ~2x forward revenue | ~$40.0 billion | ~$60 |
| Base | Adjusted EBITDA growth continues near this quarter's pace and GAAP breakeven arrives by year-end; multiple holds near ~2.5x forward revenue | ~$52.0 billion | ~$85 |
| Bull | GAAP profitability returns ahead of schedule and the buyback program is fully deployed; multiple expands to ~3.5x forward revenue | ~$73.0 billion | ~$120 |
| Current (period-end close) | — | ~$50.1 billion | $68.65 |
The share price of $68.65 sits well off the $268.07 August 2021 peak and the $54.99 Q3 2022 trough referenced in the FY2022 post - a partial recovery, not a return to 2021-era pricing. The two-year window through this quarter (April 2021 through March 2023) still spans that full $268.07-to-$54.99 range, so the stock's 2021 re-rating remains only partly unwound at this point in the backfill.
Block, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the SEC.