Summary Block, Inc. saw a 20% stock price decline after Q1 earnings, with lowered guidance and slowing growth across the board. The company missed EPS estimates in three of the last four quarters, with net income and revenue significantly down. Block lacks a competitive edge in its markets, with Cash App and Square facing strong competition and no meaningful innovation. XYZ stock's downside is limited after the selloff, but there's no clear upside without significant strength in the latter half of the year. Thesis Summary Block, Inc. ( XYZ ) just saw its stock price decline by over 20% following its Q1 earnings. Not only did the company lower its guidance, but growth is slowing down across the board. There’s simply not much to get excited about. A few years ago, XYZ held the promise of becoming a multifaceted company with an established customer base that it could increasingly monetize. But that just hasn’t materialized. Instead, XYZ has quite aptly, given its recent ticker change, become a rather uninteresting nameless company. Not particularly excelling at anything or providing any form of meaningful innovation. Unfortunately, I am no longer bullish on this name. Q1: Another Earnings Miss EPS Surprise (SA) XYZ has missed EPS estimates in three out of the last four quarters and this is just confirmation of what we should have realized some time ago. Block’s net income came in at $189.9 million, down from $472 in the previous period. Revenue also went down to $5.7 billion, missing the estimated $6.19 billion mark. To make matters worse, the company also reduced its guidance for 2025. The company now expects gross profit growth of 12%, not 15% as previously anticipated. The company mentioned it does expect growth to accelerate in the second half of the year. We shall see… What Is There To Like? Revenues are down pretty much across the board. We have Q1 2025 results here and Q1 2024 just below. Black Income statement Q1 (10Q) Black Income statement Q1 (10Q) Transaction-based revenue is down for Cash App and almost flat for Square. Subscriptions revenues have increased YoY but not in a meaningful way. Bitcoin USD (BTC-USD) revenue is also noticeably down due to lower activity. The trend is even more worrisome if we look at GPV. Square GPV (SA) Cash App GPV (SA) It is true that Q1 is sequentially a weak period, but this also shows a clear slowdown in growth YoY too and the Cash App chart is just painful to watch. XYZ Fails At ABC But the trend is simply a representation of the deeper fundamental issue. Square/Block/XYZ has lost its way. It operates in a highly competitive market, and it doesn't really have an edge in either one. Cash App’s appeal is pretty limited, with countless other ways to send payments, and particularly Venmo offering the same service. And most of the revenues there come from Bitcoin, which is a market that has also been saturated by new entrants in the last year. On the other side of the business we have Square, which is a payment processor with a pretty low market share. Payment Processor Market share (datanyze) This market continues to be dominated by PayPal Holdings, Inc. ( PYPL ) and Stripe. At one point, Square built itself a niche with brick and mortar stores that also needed POS systems, but again this is a crowded area. In my view, Square fulfills some basic needs at a decent level, but it doesn’t excel in any way. It doesn’t have any great CRM or marketing features and at the same time, it’s not really entrenched enough to be hard to replace. Here’s a quick look at some Square competitors: Square Competitors (Technologyadvice) The list goes on and on, and as we can see each provides certain advantages over Square as it is more niched. Square just doesn’t excel at anything and that’s why the company is floundering. It’s not the best Bitcoin play. It’s not the best online payment processor It’s arguably no longer the best POS payment processor. So what is Block? Valuation The stock is down 20% pre/market as I write this, but there may be further to go. Valuation (SA) Block still trades at a premium versus the rest of the market. But why should it? It doesn’t excel in growth or profitability, and the company simply lacks vision. Technical Analysis Block TA (Trendspider) The stock’s set to open at around $46, which is pretty close to the lows we struck back in April. Below that, we have a key area to watch for at $40 which is the previous low in 2023. And below that, we move into 2020 COVID levels, where the stock trades as low as $33. At $30, I think the stock would find some technical support and the valuation would be just about compelling enough. Final Thoughts But the problem with Block, Inc. isn’t the downside, which is limited after the selloff, but rather the lack of clear upside. It’s going to take some serious strength in the latter half of the year to shift investor sentiment, and I just don’t see this happening.
