Block's Downgrade Dilemma: Can Cash App Recover?

The rapid downfall of Block (SQ) shares in May 2025 underscored a stark reality: the company’s once-celebrated Cash App is now at a crossroads. After a wave of analyst downgrades and a 22% stock plunge—the worst single-day drop in five years—the question is whether the fintech giant can reverse course or if its struggles signal a deeper, structural shift.

The Downgrade Catalyst

Analysts’ concerns crystallized around three pillars: stagnant user growth, weak monetization, and macroeconomic headwinds. Cash App’s monthly active users (MAUs) plateaued at 57 million, despite new features like Afterpay integration and debit card expansion. Benchmark analyst Jeffrey Wolf called this stagnation “a critical red flag,” noting that even incremental growth gains had vanished. Gross profit for the app fell short of expectations by $40 million in Q1 2025, with inflows rising just 8% year-over-year—a stark slowdown from the 20%-plus growth of recent years.

Stagnant User Growth and Monetization Struggles

Cash App’s inability to attract new users or boost spending among existing ones has eroded confidence. Seaport Global pointed to “negative gross payment volume (GPV) growth” for two consecutive quarters, while Wells Fargo criticized the app’s “muted consumer spending” amid a “soft macro environment.” CEO Jack Dorsey admitted the company had “not focused enough on the network density” needed to grow peer-to-peer transactions—a core feature.

The broader issue is monetization. Cash App’s revenue growth slowed to 10%, far below the 20% expansion seen at rival Venmo. Block’s Rule of 40 metric—combining growth and profitability—slipped to 31%, missing its 40% target. This metric, a key gauge for SaaS and fintech firms, suggests the company is overinvesting without proportional returns.

Competitive Pressures Intensify

While Block falters, rivals are gaining traction. Venmo’s Q1 revenue jumped 20%, fueled by its debit card adoption and checkout integration. PayPal’s report highlighted Venmo’s “strong momentum,” contrasting sharply with Block’s “regrouping” efforts. Analysts worry Cash App’s focus on becoming a “full-fledged banking alternative” may be overcomplicating its value proposition, especially as users prioritize simplicity and low fees.

The Square Segment: A Silver Lining?

Amid the gloom, Block’s Square business—its payment platform for small and medium-sized businesses (SMBs)—remains a bright spot. William Blair analysts noted that Square’s international expansion and merchant acquisition efforts are paying off, with revenue growth outpacing Cash App’s. However, Square’s resilience may not be enough to offset Cash App’s stagnation.

Strategic Moves and Skepticism

Block’s response includes aggressive steps: expanding its Cash App Borrow lending program (now FDIC-approved) and boosting marketing spend by 50% in Q2. Yet analysts remain unconvinced. Jefferies called the company’s 9.5% gross profit growth forecast for Q2 “incredibly conservative,” implying even that target could be missed.

Broader Market Context: A Structural Problem?

While the U.S. labor market remains strong, Block’s struggles highlight a growing concern: consumer spending is increasingly concentrated in “winner-takes-most” fintech platforms. Unlike Block, PayPal and Square parent company Shopify reported steady spending trends, suggesting Cash App’s issues may be structural rather than cyclical.

Conclusion: A Risky Gamble?

Block’s stock now trades at $45.68—the lowest since November 2023—after losing $8 billion in market value. While bulls argue the shares are undervalued (trading at 22x forward earnings vs. PayPal’s 28x), bears point to a lack of growth catalysts. The Rule of 40 metric’s collapse and Cash App’s flat user base raise red flags, even as Square’s resilience offers a sliver of hope.

Investors face a tough choice: bet on a turnaround in Cash App’s user growth and monetization, or accept that the app’s ambitions have outpaced its execution. With the stock down 40% from its 2023 high, the risks are high—but so are the stakes for a company once seen as the future of fintech.

The verdict? Cash App’s comeback hinges on two things: reigniting user growth and proving it can monetize without alienating its core audience. Until then, Block remains a high-risk bet in a slowing consumer landscape.