Nearly three years after purchasing Tidal in an approximately $300 million deal, Block (formerly Square) has identified a $132.3 million “goodwill impairment charge” stemming from the streaming service.
This noteworthy detail came to light in the fourth-quarter and full-year 2023 earnings report of Block (NYSE: SQ), after March of 2021 saw Jay-Z offload a majority Tidal stake to the Jack Dorsey-led payments company.
That deal arrived even after several reports suggested that Tidal had grappled with significant operational difficulties across multiple years – to the tune of “multimillion-dollar losses for each of the preceding ten quarters” before the sale wrapped as well as “semi-formal at best” licensing deals with labels, to name a couple.
Predictably, some Block investors were far from thrilled with the purchase; the mentioned quotes come from a May of 2023 order dismissing a related complaint levied against the Cash App owner by the City of Coral Springs Police Officers’ Pension Plan.
In brief, the ruling determined that the potentially “terrible business decision” to acquire Tidal – traced back to a board meeting organized by Dorsey when he was “summering with Carter [Jay-Z] in the Hamptons,” per the text – was in any event above board on the legality side.
Now, lending additional credibility to investors’ qualms and the “terrible” descriptor is the initially highlighted “goodwill impairment charge related to TIDAL,” totaling $132.3 million, according to Block’s earnings report.
“The impairment charge was as a result of changes in TIDAL’s strategic focus,” Block relayed in its more detailed Form 10-K, “including terminations of certain revenue arrangements and investment into new product areas. … The fair value of the TIDAL reporting unit was estimated using the income approach, which was based upon the present value of estimated future cash flows.”
As a whole, Block acknowledged $2.16 billion in GAAP operating expenses and $1.48 billion in non-GAAP operating expenses for the fourth quarter alone – rendering the Tidal goodwill impairment charge a relatively small consideration overall. Nevertheless, the Square owner identified $178 million in net income but an operating loss of $131 million for Q4, according to the document.
Expanding on those points, this goodwill impairment – for clarity’s sake, defined by Investopedia as “when a company decides to pay more than book value for the acquisition of an asset, and then the value of that asset declines” – also appears to underscore the less-than-ideal fiscal realities of operating alternatives to key players like Spotify, Apple Music, Amazon Music, and YouTube Music.
In any event, investors don’t seem especially concerned about the possibility of the scaled-back Tidal’s being a drag on Square’s financials moving forward; the topic didn’t come up at all during the business’s earnings call. Moreover, shares spiked 16.13 percent during today’s trading to finish at $78.92 apiece, compared to a 52-week high of $83.29.
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