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Jack Dorsey-led Block shares tank 19% after payments company cuts profit outlookDespite the quarterly results and guidance coming in below expectations, Block executives expect gross profit acceleration in the second half of the year. A key growth driver is expected to be Cash App’s short-term lending product, Cash App Borrow.By Bloomberg  May 2, 2025, 4:11:51 AM IST (Published)4 Min ReadShares of Block Inc. sank in late trading after the digital-payments company led by Jack Dorsey posted first-quarter results below analysts’ estimates and lowered its full-year profit guidance as a result of a more challenging macroeconomic environment.

The company said it now expects gross profit to grow 12% to $9.96 billion this year, down from its previous expectation of at least $10.22 billion. Adjusted net income for the first quarter was 56 cents per share, trailing the average estimate of 88 cents in a Bloomberg survey of analysts.

Net revenue was $5.77 billion, missing the average analyst estimate of $6.22 billion. Gross payment volume for the quarter was $56.79 billion, below the average estimate of $57.79 billion.

The shares tumbled 19% to $47.62 in after-hours trading on Thursday.

The reduced guidance came after gross profit growth for Block’s Cash App unit came in below expectations following softer Cash App card spending than the company had forecast, Dorsey wrote in a letter to shareholders.

The largest hit came from a decline in discretionary spending in categories including media and travel, Chief Financial Officer Amrita Ahuja said in an interview. Cash App card spending remained resilient in essential categories like gas and groceries, Ahuja added.

“What we saw shift in the first quarter was a change in behavior on the Cash App customer base during the tax-refund season versus what we’ve seen in past tax seasons,” Ahuja said. “This gross profit guidance really reflects a view that what we saw in Cash App this quarter may be a sign of a changing macro backdrop where we have wider error bands and uncertainty.”

Cash App is a key strategic priority for Block, which is in the midst of a push to convert more users of the popular peer-to-peer money transfer app into full-fledged banking customers. The imperative to boost the profitability of its existing user base comes as the number of the app’s users making transactions remained flat at around 57 million per month for the past five quarters.

In the latest quarter, Block reported 0% year-over-year growth in that metric. Cash App has historically focused on serving the underbanked segment, or individuals who typically have bank accounts but also have to rely on alternative financial services.

“It could be that we see more compression in the consumer types that Cash App indexes higher toward,” Ahuja said. “We’re going to do what we can to support the customer base and do that responsibly. We know that products like ours — where you get fast access to funds, the ability to move money around quickly to save, to invest or to spend — become even more important in uncertain or dynamic times like this.”

In recent quarters, Block’s focus for Cash App has been increasing the profitability of each user instead of adding new users. The company is refocusing on growing the number of active users, in particular by focusing on teens and families, Dorsey said in the company’s shareholder letter.

“While we’ve made progress on banking adoption, we’ve been too narrow in our focus,” Dorsey’s letter said. “We want to expand the underlying Cash App network to drive actives growth and density.”

Despite the quarterly results and guidance coming in below expectations, Block executives expect gross profit acceleration in the second half of the year. A key growth driver is expected to be Cash App’s short-term lending product, Cash App Borrow.

Earlier this year, Block subsidiary Square Financial Services received approval from the US Federal Deposit Insurance Corp. to offer consumer loans. The company plans to increase loan originations and improve the customer experience, Dorsey’s letter said.

Also in the quarter, Block was fined $40 million by New York for alleged anti-money-laundering inadequacies and cryptocurrency compliance failures on Cash App.

The announcement came after Block agreed to pay $80 million to resolve claims from other state regulators that its Cash App unit lacked sufficient protocols to flag illicit transactions. Block said at the time that it had reached an agreement with the final remaining state money transmission regulator, the New York Department of Financial Services, to resolve the matter.Continue ReadingCheck out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!TagsJack Dorsey