Block jumps on sharper profitability focus, mimics PayPal rally

By Niket Nishant and Manya Saini

(Reuters) -Block's shares jumped nearly 16% at open to their highest since mid-September on Friday, rallying after analysts lauded the payments firm's sharpened focus on profitability and a $1 billion stock buyback plan.

The emphasis on profitability and cost control echoed the commentary from larger peer PayPal Holdings, which said earlier this week that it would turn "leaner" to drive growth.

Strong forecasts from the duo have restored investors' faith in the industry after French fintech giant Worldline's downbeat outlook led to a slump in European and U.S. payments stocks last week.

Block added over $4 billion to its market value, based on the stock's last trading price of $51.35, after the profit forecast and CEO Jack Dorsey's pledge to keep an "absolute cap" on the number of employees, until gains in the business outpaced headcount growth.

"While CEO Jack Dorsey has talked about greater discipline when it comes to profitability, we've seen little actual progress and we like that the company is now providing discrete profitability targets," Morningstar analyst Brett Horn said.

The company on Thursday forecast its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.4 billion, above LSEG estimates of $2.08 billion.

STREET LAUDS BUYBACK, BUT CONCERNS PERSIST

Block unveiled a plan to repurchase $1 billion worth of shares, which Dorsey said would help the company offset some dilution from share-based compensation to employees.

But some analysts remained skeptical, citing uncertainty around the company's ability to expand margins especially as rivals chip away at the market share.

"We remain on (the) sidelines considering growth moderation, with (the) merchant segment likely losing share to Clover and Cash App's monetization (that) seems to be stalling," Wedbush analyst Moshe Katri said.

Clover is operated by payments services firm Fiserv, which has also raised its annual profit forecast.

(Reporting by Niket Nishant in Bengaluru; Editing by Shinjini Ganguli)

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