Block shares dropped sharply Friday following the release of first-quarter financial results that missed analyst expectations and included reduced guidance for the year. The performance miss prompted a wave of analyst downgrades centered on the company's consumer-facing service, Cash App.
The financial services company reported revenue of $5.77 billion for the period ending March 31, below Wall Street targets of $6.19 billion. Adjusted earnings per share were 56 cents, while analysts had looked for 97 cents. Block also reduced its fiscal 2025 gross profit forecast.
Weakness stemmed largely from stagnant user growth and reduced spending within the Cash App business. Analysts flagged concerns about muted consumer demand and a difficult macro environment impacting monetization. Benchmark downgraded Block Stock to hold, writing that "stagnation in the number of active users of the app is even more concerning than users' reduced spending."
Gross profit for Cash App was $1.38 billion, up 10% year over year but shy of the $1.42 billion consensus forecast. Monthly transacting actives remained flat at 57 million.
CEO Jack Dorsey commented on the earnings call, "I just don't think we were focused enough and had enough attention on the network and the network density, and that is our foundation." He added that the company needs to "make sure that we continuously grow our network."
Wells Fargo cited "numerous Cash App monetization red flags," while Seaport pointed to consecutive quarters of negative payment volume growth in one business segment. BMO downgraded the stock to market perform.
Block's turnaround plan includes expanding its lending products, particularly Cash App Borrow, which recently received approval to originate loans nationwide. The company aims to deepen engagement through these financial services, leveraging its "bank our base" strategy, especially for users who deposit paychecks directly into the app. Block is also integrating an internal AI tool called "goose" to automate workflows and improve efficiency.
The Square seller business showed better momentum, with international gross payment volume growing 15% year over year, outpacing U.S. growth.
In contrast, rival Venmo, owned by PayPal, reported a 20% revenue increase in its first quarter, driven by increased product adoption and growing volume at checkout. Venmo appears to be gaining ground, while Cash App is regrouping.
Block shares fell more than 21% in early trading Friday following the results. The company's stock ticker changed to XYZ from SQ on January 21.