Block's Rocky Start: Can Bullish Analysts Be Right?

Block’s stock price plummeted 20% following its Q1 2025 earnings miss, marking its lowest level in 18 months. While bears highlight execution failures and macroeconomic headwinds, a subset of analysts remains bullish, citing strategic pivots and undervalued fundamentals. This article dissects the company’s challenges, analyst arguments, and the path to recovery.

The Q1 Miss: A Perfect Storm?

Block’s Q1 results were a mixed bag of misses and missteps. Revenue of $5.77 billion fell short of expectations, while gross payment volume (GPV) of $56.8 billion underperformed. Cash App, the company’s consumer-facing star, struggled with stagnant user growth (57 million monthly transacting users) and weaker discretionary spending. Tax refund season inflows, a key driver of Cash App’s growth, disappointed, exacerbating profit pressures. Gross profit per user dropped to $81, reflecting declining monetization.

Analysts Split on Block’s Future

The earnings miss triggered a wave of downgrades, with Wells Fargo and BMO questioning Cash App’s monetization potential and user growth. Bearish analysts highlighted risks like tepid peer-to-peer (P2P) engagement and competition from Venmo, which reported stronger debit card adoption. Seaport’s “Will the real Jack Dorsey please stand up?” quip underscored skepticism toward leadership consistency.

Yet, bulls see value in Block’s fundamentals. Bank of America maintained a Buy rating, citing $1.53 billion in trailing free cash flow and a discounted valuation. Morgan Stanley emphasized Square’s seller ecosystem growth, noting its 16% international revenue jump. Both argue that near-term underperformance masks long-term opportunities in lending and AI-driven efficiency.

Strategic Shifts: Lending, Marketing, and AI

Block is doubling down on three initiatives to reignite growth:
1. Lending Expansion: After securing FDIC approval, Cash App Borrow aims to double its eligible user base. By in-house loan servicing, Block expects healthier margins and real-time credit monitoring via machine learning.
2. Marketing Surge: Q2 marketing spend will rise 50%, targeting P2P network density and teen/family demographics. Referral programs and partnerships (e.g., Afterpay integration) are central to reaccelerating user growth.
3. AI Integration: CEO Jack Dorsey highlighted “Goose,” an internal AI tool, to boost product development speed and customer engagement.

These moves align with revised guidance: full-year gross profit growth is now 12%, down from prior targets, but CFO Amrita Ahuja emphasized that the outlook reflects cautious macro assumptions.

Competing in a Crowded Space

Venmo’s parent company PayPal reported a 20% revenue rise in Q1, fueled by e-commerce integration and debit card usage. Block’s Cash App must differentiate itself through banking services and lending—a space where Venmo lags. Meanwhile, Square’s seller business, which grew 12% in international markets, remains a stabilizing force.

Conclusion: A Risky Gamble or Undervalued Opportunity?

Block’s Q1 stumble exposed vulnerabilities in Cash App’s growth engine, but its strategic shifts and selective analyst optimism suggest a path forward. Key data points favor bulls:
- Valuation: At $5.77 billion in Q1 revenue and $1.53 billion in free cash flow, Block trades at a forward price-to-free-cash-flow ratio of ~11x, below PayPal’s ~15x.
- Lending Potential: In-house loan servicing could add 200–300 basis points to margins, per management estimates.
- Cash Flow Resilience: The company’s $1.9 billion adjusted operating income target for 2025 assumes only mid-teens growth in the final quarter—a conservative baseline.

However, risks remain. Stagnant user growth and macroeconomic pressures could prolong underperformance, while Venmo’s momentum threatens Cash App’s P2P dominance. Investors must weigh the odds of Block executing its turnaround against near-term headwinds.

For now, Block’s stock price reflects investor pessimism, but bulls argue it’s a discount to a company with enduring seller ecosystem strength and untapped financial services potential. The next quarter will test whether the “Hail Mary” moves—lending, AI, and marketing—are enough to turn the tide.