Block, Opendoor revenue exposes fintech uncertainty

Block and Opendoor scramble

Both Block and Opendoor struggle to respond to rapid changes in the macroeconomic environment that have a major impact on home purchases and consumer spending in general.

They are part of a fintech industry that is particularly sensitive to interest rate changes and inflation – but both companies emerged relatively unscathed from earnings on Thursday, despite some investor concerns.

Both companies’ shares have fallen in recent months, along with the rest of the market, but both have tried to give investors reason for optimism for the rest of this year despite the potential for the economy to worsen.

Block’s earnings beat estimates, but investors remained nervous. Shares fell 6% after hours on Thursday as investors appeared to fear potential headwinds later this year.

• Block said July growth for Square’s commerce business was up 18% year over year, after rising 29% in the second quarter, which may have spooked investors worried about the economy. Meanwhile, gross payment volume, a measure of overall spending, was $52.5 billion, just below analyst estimates of $53.2 billion, but still up from $42.8 billion a year ago.
• The company cut non-GAAP operating expense plans by $450 million since the beginning of the year as it enters a “period of potential uncertainty,” CFO Amrita Ahuja said. It has slowed hiring and pulled back on experimental and less effective marketing.
• Block continues to bet big on the Afterpay acquisition and touted its boost to the Square device and Cash app. The company expects much more in terms of benefits for all three as they benefit each other, Jack Dorsey said.
• Block closely monitors loan loss rates, but the “buy now, pay later” Afterpay deal had loss rates of around 1% in the first quarter, a slight improvement from the previous quarter.
• Revenue for bitcoin, Dorsey’s favorite area for future innovation, fell along with the crypto market to $1.79 billion, down 34%.

Opendoor’s earnings showed growth despite a volatile home buying market. The company is trying to adjust by slowing down the purchase of homes.

• Opendoor reported mixed results. The second quarter topped estimates, with revenue up more than 250% year-over-year to $4.2 billion, and adjusted EBITDA of $218 million, compared to $25 million in the second quarter of 2021. But the outlook for the third quarter is between $2.2 billion and $2.6 billion, with adjusted EBITDA estimates of $125 million to $175 million.
• That’s because of “current market volatility,” according to CEO Eric Wu. Interest rates have driven up mortgage rates, and Opendoor says it has been forced to reduce the prices of homes in its inventory to meet the market. But there is still right-of-purchase demand “consistent” with 2018 and 2019, the company said. Requests for quotations were higher than ever, increasing by 69% year-on-year.
• iBuying is designed for a volatile market, they say. “One of the structural advantages of our business model is its responsiveness and adaptability to changing market conditions,” Wu said in the report.
• The company has been widening its spread since early May and will begin reducing acquisitions, a strategy the company says will help it prepare for market volatility. In other words, Opendoor is trying to learn from Zillow’s mistakes last year. The company also faces other challenges in dealing with the $62 million fine it is paying the FTC after the commission said it misled customers.
• Enemies made nice: The big news on Opendoor’s Thursday call had little to do with earnings — it was a new partnership with Zillow, formerly Opendoor’s top competitor in iBuying. The partnership will allow Zillow sellers to request Opendoor offers through the site, reducing friction and allowing Opendoor to tap into a huge customer base ready to sell online.

While the fintech industry has been pushed through the recent stock market downturn, Block and Opendoor offer reasons for optimism – better technology, new approaches to adding customers and growing businesses in their respective markets. They also show some significant reasons to be cautious in the autumn, without anyone having a clear idea of ​​where the economy is headed.

– Tomio Geron (e-mail | twitter) and Veronica Irwin (e-mail | twitter)

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