Block, the payments firm formerly known as Square, saw its stock price plummet by 16% on Friday morning following the release of its holiday quarter earnings. The slowdown in consumer spending growth sparked investor concerns, highlighting the company’s reliance on its buy-now, pay-later (BNPL) offering, Afterpay, to achieve its ambitious 2025 profit targets.
The subdued consumer spending environment stems from factors such as trade policy uncertainty under the new Trump administration and persistently high interest rates, despite a robust labor market and consistent wage growth. This economic backdrop has created headwinds for Block’s core businesses.
Cash App, Block’s peer-to-peer mobile payment platform, experienced a significant deceleration in gross profit growth. The holiday quarter saw a 16% increase, a marked decline from the 25% growth reported a year earlier. This slowdown underscores the intensifying competition in the digital payments landscape. Tech behemoths like Apple and Google are expanding their footprint, while established players like PayPal are broadening their product offerings to retain increasingly cautious customers.
Brett Horn, senior equity analyst at Morningstar, emphasized the uncertainty surrounding Cash App’s long-term profitability, stating that its growth trajectory “still in question.” Block’s business-focused Square unit also faced challenges, with gross profit growth slowing to 12% in the quarter, compared to 18% a year earlier.
If these losses hold until the end of the trading session, Block stands to lose approximately $8 billion in market value. The disappointing results prompted at least three brokerages to downgrade their price targets for the company’s stock.
Block has projected at least 15% year-over-year gross profit growth by 2025, coupled with a margin expansion of around 240 basis points. The company is betting heavily on the expansion of its BNPL services through Afterpay, acquired in January 2022, to fuel this growth.
A graph illustrating the projected growth of the BNPL market.
Analysts see BNPL as crucial to Block’s future success. Jefferies has labeled 2025 a “now or never” year for the company, while Oppenheimer anticipates that the full-year outlook for gross profit growth will be a contentious issue for investors. The BNPL market is poised for significant expansion, with projections exceeding $160 billion by 2032. Major retailers like Walmart, Target, and Amazon are embracing BNPL alongside fintech companies like Block and PayPal to attract younger, credit-conscious consumers.
BNPL’s rapid approval process, ease of access, and fee-based revenue model make it an attractive offering for fintech companies. Traditional banks, on the other hand, face constraints from stricter regulations, higher risk assessment standards, and a reliance on interest-based credit products.
During a post-earnings call, Chief Financial Officer Amrita Ahuja expressed confidence in Cash App’s growth acceleration. She cited the scaling of Afterpay products on the platform and increased marketing investments as key drivers for future growth. However, the market’s reaction suggests significant skepticism about Block’s ability to deliver on its ambitious 2025 targets in the face of a challenging macroeconomic environment and intensifying competition. Block’s future hinges on its ability to successfully leverage BNPL to drive growth and profitability.
