Block's Q1 Results: A Tale of Earnings Growth Amid Revenue Stumbles and Market Skepticism

Block, Inc. (NYSE: SQ) delivered a mixed performance in its first-quarter 2025 earnings report, showing resilience in profitability despite a notable revenue shortfall that sent shares plunging 18% after hours. While adjusted earnings per share (EPS) rose year-over-year, the miss against consensus estimates and lingering macroeconomic headwinds have raised questions about the company’s ability to sustain momentum in its core fintech segments.

The report highlights a stark contrast: gross profit and adjusted EBITDA grew by 9% and 15% year-over-year, respectively, driven by Square’s strong performance and Cash App’s new product launches. Yet revenue of $5.77 billion fell $440 million short of expectations, with EPS at $0.56 lagging behind the anticipated $0.98. This divergence underscores the challenges Block faces in balancing growth ambitions with near-term execution.

Segment Breakdown: Square Shines, Cash App Struggles

Square, Block’s merchant-facing division, remains a bright spot. Its 9% YoY gross profit growth was fueled by a 7.2% increase in Gross Payment Volume (GPV), with banking services and vertical-specific partnerships boosting seller retention. The segment also launched over 100 new features, including enhanced online tools and support for large invoices—a move to capture higher-value transactions.

Cash App, however, faced headwinds. While gross profit per monthly transacting user rose 10% YoY to $81, discretionary spending (travel, media) weakened, and tax refund inflows—a seasonal driver—fell below expectations. The launch of Cash App Afterpay in February and retroactive card splitting in April offered hope, but these products will need time to scale.

The starkest opportunity lies in Cash App Borrow, which secured FDIC approval to expand nationwide. This could double its eligible user base, though the product’s unit economics and regulatory scrutiny remain critical variables.

Strategic Moves: Bitcoin Hardware and AI Investments

Block’s long-term bets are equally compelling. Proto, its hardware division, plans to launch Bitcoin mining chips and systems in H2 2025, with CEO Jack Dorsey projecting a $3–6 billion annual revenue opportunity. Meanwhile, the company’s partnership with NVIDIA to deploy DGX GB200 AI systems aims to boost productivity tools like "Goose," designed to streamline workflows for sellers and engineers.

The Elephant in the Room: Revenue Miss and Valuation Concerns

The $440 million revenue shortfall raises questions about execution in key areas. Weak tax refund inflows and soft discretionary spending suggest Cash App’s consumer base is still vulnerable to economic uncertainty. Compounding concerns, Block’s adjusted free cash flow (TTM) rose to $1.53 billion, but its Rule of 40 compliance (a metric combining growth and profitability) remains unconfirmed.

Investors also face valuation challenges. At a P/E ratio of 12.59x, Block trades at a discount to peers like PayPal (PYPL) or Square competitor Stripe. Yet the stock’s near-52-week low of $46.42 signals skepticism about its ability to deliver top-line growth amid rising competition and regulatory risks.

Risks and Roadblocks

Block’s path forward is fraught with obstacles. Macroeconomic pressures could further dampen discretionary spending, while fintech rivals like Wise and Revolut are nipping at its heels. Supply chain delays for Bitcoin mining hardware and the fallout from workforce reductions—particularly in innovation teams—also loom large.

CEO Dorsey’s focus on AI and network expansion is laudable, but these efforts require sustained investment. CFO Amrita’s emphasis on “test-and-learn” scaling suggests caution, yet shareholders may demand clearer evidence of ROI for projects like Goose or Proto’s mining hardware.

Conclusion: A Buy for Long-Term Optimists, a Wait-and-See for Bulls

Block’s Q1 results paint a company in transition. While its profitability metrics and cash flow suggest underlying health, the revenue miss and market reaction reveal investor impatience. The stock’s current valuation—supported by a 19% adjusted operating margin target and $1.9 billion annual operating income guidance—offers a margin of safety for those willing to bet on its long-term vision.

Crucial catalysts lie ahead: Cash App Borrow’s national rollout, Afterpay’s integration, and Proto’s Bitcoin hardware launch in H2 2025. If these initiatives deliver on their potential, Block could reclaim momentum. Until then, the path to recovery hinges on stabilizing discretionary spending, refining product attach rates, and proving that AI and Bitcoin bets aren’t just moonshots but viable revenue streams.

For now, the jury remains out. But with a P/E ratio below 13 and a Rule of 40 metric (if met) signaling sustainable growth, Block offers a compelling contrarian play—for those willing to endure near-term turbulence.