Stock of the day: Block

(AI video summary)

This video was created on 2 May 2025 for IG audiences by ausbiz.

ASX code: SQ2

Block misses first quarter estimates

Block, the Afterpay owner, reported first quarter profit of just under $190 million (30 cents per share) compared with $472 million (74 cents per share) a year earlier. The payments firm cut its profit forecast for 2025, now anticipating 12% growth in gross profit year-on-year, down from 15%.

This disappointing result caused Block's share price to fall approximately 19% in extended trading on Wall Street, with an initial drop of around 33% during early trading before recovering somewhat.

Consumer spending concerns

Analysts highlighted several challenges facing Block, including upcoming debt repayment obligations. The company has convertible notes worth billions of dollars maturing in the next two to three years, raising questions about funding requirements.

More broadly, Block's performance is seen as an indicator of fragility in US consumer spending. Supply chain disruptions in America, particularly in California ports, suggest potential retail inventory shortages in coming weeks.

Rising unemployment and bad debt risks

Industry veterans note that rising unemployment typically leads to disproportionately higher bad debt rates for payment processors. When employment levels drop, financial services companies face both higher collection costs and lower collection success rates.

Given these multiple headwinds, market analysts recommend caution regarding Block's near-term prospects, suggesting these challenges may take several months to resolve.