Block (XYZ) continues to face challenges with its Cash App segment amid intensifying competition and a soft macroeconomic environment. The company’s first-quarter 2025 earnings report fell short of market expectations, primarily driven by Cash App’s underperformance, leading to missed EPS and revenue targets and subsequent downgrades from several analysts.
However, the report also highlighted positive developments. Despite a 3% decline in overall revenue, Block’s operating income rose an impressive 28% year-over-year, reaching $466 million. The company’s Square business showed strong momentum, particularly in key verticals such as retail and food & beverage, while its international operations achieved robust 15% year-over-year growth.
Block (XYZ) estimated and reported earnings history
In light of these factors, despite Cash App’s setbacks, Block’s diversified business model and attractive valuation underpin a bullish outlook for the stock moving forward.
Cash App Faces Stiff Competition in Saturated P2P Market
Cash App’s growth has plateaued, with monthly active users holding steady at 57 million for the fourth consecutive quarter. Additionally, the app’s gross profit fell short of expectations, largely influenced by shifts in consumer spending behavior. It’s important to note that Cash App’s user base skews toward lower-income adults, a demographic particularly sensitive to economic fluctuations.
The competitive landscape for Cash App is increasingly challenging. Major players such as PayPal (PYPL), Zelle, Apple (AAPL), and Google (GOOGL) exert significant pressure. Apple and Google present unique challenges given that their payment solutions are pre-installed on their respective smartphones, creating a seamless user experience. Zelle, owned by leading banks like Bank of America and JPMorgan Chase, benefits from deep integration with users’ banking relationships, further enhancing convenience. Meanwhile, Venmo has gained traction through its social networking features, appealing to younger demographics.
Performance Comparison between XYZ, PYPL, AAPL and GOOGL stocks
Performance Comparison between XYZ, PYPL, AAPL and GOOGL stocks
This saturated market and fierce competition from established financial institutions and technology giants have constrained Cash App’s growth prospects.
However, there are promising signs on the horizon. Block is actively pursuing initiatives aimed at reigniting growth for Cash App. Notably, the FDIC recently approved Block’s application to offer consumer loans through the platform. This development aligns with Square’s expanding focus on the buy-now-pay-later market, following its strategic acquisition of Afterpay in 2021, and could unlock new revenue streams and user engagement opportunities moving forward.
Square Business Shows Resilience with Market Share Gains
Beyond Cash App’s challenges, Block’s broader business outlook appears more promising. For those unfamiliar, Block operates a diverse portfolio of brands, including Cash App, Square (which provides commerce and financial services for sellers), Afterpay, TIDAL (a music streaming platform), Bitkey (a bitcoin wallet), and Proto (a bitcoin mining products and services provider).
Cash App by Square Inc.
Square, often regarded as Block’s legacy business, showed notable improvement in the first quarter, driven by market share gains despite stiff competition from companies like Toast and Fiserv’s Clover. It’s worth remembering that Square was a pioneer in this space, and the company continues to innovate by targeting new verticals such as retail. Additionally, Square’s international markets experienced robust growth, increasing 15% year-over-year.
Block’s strategic focus remains on mid-market seller segments, specifically those generating over $500,000 in annualized Gross Payment Volume (GPV). This high-value customer segment now represents 41% of Square’s GPV, up from 39% in the first quarter of 2024. Moreover, the company is successfully expanding cross-selling efforts, with nearly half of Square merchants now utilizing Block’s suite of banking products, highlighting growing integration and customer loyalty across the platform.
Record Profitability Highlights Operational Excellence
The most notable highlight of Block’s first-quarter earnings was its record-high adjusted operating income of $466 million, with an impressive 20% operating margin despite facing revenue headwinds.
Block (XYZ) revenue, earnings and profit margin history
According to Wall Street, XYZ has accrued a Moderate Buy rating based on 25 Buy, 10 Hold, and one Sell recommendations in the past three months. XYZ’s average price target of $65.50 implies a potential upside of 12.25% over the next twelve months.
Earlier this month, analyst Gustavo Gala from Monness maintained a Buy rating on XYZ with a price target of $75. The analyst noted, “Block’s ability to consistently beat EBIT/EBITDA guidance suggests a strong underlying business model.” Also, Gala said he is encouraged by the “potential for network effects across its ecosystems,” which helps differentiate Block from some of its competitors.
In summary, Block’s diversified portfolio effectively offsets the challenges Cash App faces. The Square business is gaining market share within key verticals and successfully expanding into higher-value segments. Moreover, despite moderating growth, the company’s solid financial performance underscores its fundamental strengths—strengths that the market may be overlooking given the stock’s recent underperformance.
Currently, Block is trading well below its historical valuation levels, with a forward P/E ratio of just 12, down more than 70% from a recent average of 44. This valuation presents a compelling opportunity for patient investors willing to navigate the ongoing Cash App headwinds. The combination of Square’s momentum, improving profitability, and projected acceleration in growth during the second half of the year suggests brighter prospects ahead. Should Cash App stabilize, investors stand to benefit from significant upside potential.
That said, there are reasons to exercise caution. Despite its diversification, Block’s businesses remain sensitive to macroeconomic conditions. An economic slowdown could negatively impact multiple segments, particularly Cash App and Square, which serve predominantly lower-income consumers and small business owners. Additionally, Block faces formidable competition from industry giants like Apple, which benefit from extensive ecosystem advantages, such as their pre-installed iPhone payment solutions.
Overall, the market appears to have priced in more risk than opportunity in Block, positioning Square as a contrarian investment worth considering in the months ahead.
