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On Friday, Raymond (NSE:RYMD) James maintained an Outperform rating on Block Inc. (NYSE: SQ) but reduced the price target from $103.00 to $74.00. The adjustment follows Block’s first-quarter results, which presented a mixed financial picture. While the company’s adjusted EBITDA surpassed expectations by approximately 4%, its gross profit fell short by about 1% compared to the consensus. According to InvestingPro data, Block’s stock has experienced significant volatility, with a year-to-date decline of 31%, though analysis suggests the stock is currently trading below its Fair Value.
The shortfall in gross profit was attributed to Block’s Cash App, which saw a deceleration of around 700 basis points to a growth rate of 10%, underperforming the consensus by approximately 3%. Conversely, both total and U.S. Seller Gross Payment Volume (GPV) growth rates were more robust than anticipated. Management anticipates second-quarter growth to be in the high single-digit (HSD) range after witnessing a 9.6% expansion in April, which aligns with the first quarter’s growth when adjusted for foreign exchange and leap day effects. InvestingPro analysis shows Block maintains strong financial health with a current ratio of 2.33x, indicating solid liquidity to support its growth initiatives.
However, the guidance for second-quarter gross profit and adjusted operating profit was approximately 4% and 14% below consensus, respectively. Additionally, the outlook for 2025 has been revised downwards, with expectations for gross profit and operating profit lowered by around 3% and 10%. Despite this, management’s guidance for 2025 includes a degree of incremental conservatism and still suggests a significant acceleration in gross profit growth in the second half of the year, with low double-digit (LDD) growth in the third quarter and mid-teens growth in the fourth quarter.
The analyst acknowledged that while the forecast for the second half of the year may be met with skepticism, the current valuation of Block’s shares, trading at 10 times the estimated 2026 EBITDA including stock-based compensation (a ratio of enterprise value to EBITDA to growth of 0.4x), presents an attractive risk/reward scenario. Nonetheless, the analyst admitted that the stock’s performance is contingent on proving its potential and that investors’ patience might be tested. For deeper insights into Block’s valuation and growth potential, InvestingPro subscribers can access comprehensive financial health scores, detailed Fair Value analysis, and expert-curated ProTips in the Pro Research Report, part of the platform’s coverage of over 1,400 US stocks.
In other recent news, Block Inc. reported first-quarter earnings for 2025 that fell short of expectations, with earnings per share (EPS) at $0.56 compared to the anticipated $0.98, and revenue at $5.77 billion, below the forecasted $6.21 billion. Despite this miss, the company saw a 9% increase in gross profit year-over-year, reaching $2.29 billion, and a 15% rise in adjusted EBITDA to $813 million. Following these results, both BTIG and JPMorgan adjusted their price targets for Block, with BTIG lowering it to $70 and JPMorgan to $60, though both maintained positive ratings on the stock. Analysts noted a slowdown in Cash App activity, attributing it to macroeconomic factors and weaker inflows from tax refunds, but highlighted the Square segment’s strong performance. Block Inc. has also revised its full-year 2025 guidance, now expecting gross profit growth from 9% in the first quarter to 12% for the full year, reflecting a cautious stance due to a softer macroeconomic environment. The company is banking on potential growth drivers, such as increased product adoption and revenue synergies between Cash App and Square, to boost performance in the coming quarters. Investors are looking forward to more insights from Block’s leadership at the upcoming JPMorgan TMC Conference, where further strategic details may be revealed.
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