The Block's net loss swings to $14.7m on rising Bitcoin impairment loss

The Block, an information services company dedicated to digital assets, posted a more than $14.7 million net loss in the third quarter, from a net income of $84,000 earned in the same period last year.

However, it narrowed losses from the $208m net loss reported in the June quarter of 2022.

The third-quarter net loss was affected by $56m of amortisation of acquired intangible assets and a $2m Bitcoin impairment loss, the company said in a statement on Thursday.

In the fourth quarter of 2020 and first quarter of 2021, the company invested $50m and $170m, respectively, in Bitcoin. As of September 30, the fair value of its investment in Bitcoin stood at $156m, based on market prices.

The Block’s total revenue surged 17 per cent on an annual basis to $4.52 billion. However, excluding Bitcoin revenue, total net revenue surged 36 per cent year-on-year to $2.75bn.

Jack Dorsey, founder of The Block, a financial payments company. AP

The San Francisco company also owns Cash App, a consumer payments and investing product, and Square, its sales and register service used by small businesses.

“We delivered strong growth at scale … gross profit grew 38 per cent year-on-year to $1.57bn, up 46 per cent on a three-year compound annual growth rate basis,” the company said in a letter to shareholders.

“Our Cash App ecosystem delivered gross profit of $774m, an increase of 51 per cent … [and] our Square ecosystem delivered gross profit of $783m, an increase of 29 per cent,” it added.

In the third quarter of 2022, the company’s buy-now-pay-later (BNPL) platform contributed $210m of revenue and $150m of gross profit.

Its transaction-based revenue surged 17 per cent to more than $1.5bn in the third quarter, and transaction-based gross profit was up 13 per cent to $616m. In the July-September period, the company processed $54.4bn in gross payments volume, up 20 per cent year over year.

The company’s subscription and services-based revenue surged more than 70 per cent to $1.2bn in the third quarter, and the subscription and services-based gross profit was $966m, up 70 per cent year over year.

Operating expenses of the company reached $1.62bn in the third quarter, an increase of nearly 46 per cent yearly.

It ended the third quarter with $7.1bn in available liquidity. The company has $6.5bn in cash, cash equivalents, restricted cash and investments in marketable debt securities, as well as $600m available to be withdrawn from its revolving credit facility.

“Additionally, we had $1.2bn available to be withdrawn under our warehouse funding facilities, to support funding of growth in our consumer receivables related to our BNPL platform,” it added.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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