Block Inc. shares plunged nearly 25% on Friday, May 2, 2025, following a dismal quarterly earnings report that raised alarms among investors and analysts alike. The digital payments company, which operates the popular Cash App and Square payment systems, reported a series of misses across key financial metrics, prompting multiple brokerages to downgrade their ratings on the stock.
The company's first-quarter earnings per share came in at $0.56, significantly lower than the $0.92 anticipated by analysts surveyed by Visible Alpha. This disappointing performance was accompanied by a 3% year-over-year decline in revenue, which totaled $5.77 billion, also falling short of forecasts. Block's gross profit rose 9% to $2.29 billion, but this too was below expectations, with analysts predicting $2.32 billion.
CEO Jack Dorsey acknowledged the challenges during the earnings call, stating, "We saw changes to consumer spending as the quarter progressed that we believe drove the majority of our forecast miss." He emphasized the need for the company to focus on network density and deepen customer engagement through banking services and lending.
One of the most concerning aspects of Block's report was the stagnation in Cash App's user growth. Monthly active users remained flat at 57 million, and inflows increased by just 8%, despite the introduction of new features such as Afterpay on the Cash Card. Benchmark analyst noted, "Stagnation in the number of active users of the app is even more concerning than users' reduced spending," leading to a downgrade of Block's stock to Hold.
Wells Fargo also highlighted "numerous Cash App monetization red flags" and downgraded the stock to Equal Weight. Seaport echoed these sentiments, pointing to several consecutive quarters of negative gross payment volume (GPV) growth. In stark contrast, Morgan Stanley maintained an Overweight rating, citing better-than-expected momentum in the Square seller business, particularly in international markets.
As a result of these developments, Block's stock tumbled to its lowest level in almost a year and a half, with analysts predicting continued pressure on the stock. BMO downgraded Block to Market Perform, while Bank of America reiterated its Buy rating, arguing that the stock remains undervalued.
Block's turnaround strategy hinges on expanding its lending capabilities. The company announced that Cash App Borrow has been approved by the FDIC to originate loans, which is expected to double the number of eligible users and enhance profit margins by bringing servicing in-house. Additionally, Block plans to increase its marketing spend by 50% in the second quarter to reaccelerate growth.
In contrast, rival Venmo, owned by PayPal, reported a robust 20% revenue jump in the first quarter, driven by greater adoption of its debit card and instant transfers. Venmo's success highlights a growing trend in the digital payments space, where competition is intensifying. While Cash App leans into lending and banking, Venmo is focusing on enhancing user spending at checkout.
Block's cautious stance regarding its financial guidance reflects the broader economic uncertainty. COO and CFO Amrita Ahuja noted, "We're operating in a more dynamic macro environment, so we've reflected a more cautious stance on the macro backdrop into our guidance." The company now projects gross profit for the current quarter at $2.45 billion and for the full year at $9.96 billion, both below analyst estimates.
Analysts are concerned that the relatively low income levels of some of Square's customer base may pose risks if a U.S. recession occurs. Jefferies analyst Trevor Williams stated, "Management's talk around weaker Cash App spending, while other companies in the space are speaking to solid consumer trends through the end of April, is a primary source of additional selling pressure."
As of May 2, 2025, Block's stock has faced significant challenges, with a staggering decline of over 30% since the beginning of the year. The company has also changed its ticker symbol from SQ to XYZ, further marking a shift in its market presence.
In summary, Block's recent earnings report has raised serious concerns about its future trajectory, particularly in light of the stagnation in Cash App growth and the broader economic environment. While some analysts maintain a degree of optimism regarding its valuation and potential for recovery, the path forward remains fraught with uncertainty and competitive pressures.
