Block (NYSE: XYZ), the company behind Square and Cash App, delivered a much stronger quarter than expected, raised full-year guidance, and showed that its aggressive restructuring might already be helping.
For the most visible metrics, the company outperformed in the first three months of the year, and its growth and profitability both jumped in the right direction.
In fact, it is now solidly hitting the Rule of 40, a much-watched measure for growth-stage tech companies.
Investors, however, still have reason to be cautious. The stock is pricing in its near-term success.
The question is how much room is left to run if the company's pivots continue to pay off.
Block Delivers Strong Growth and Profitability
By many measures, Block’s first quarter was outstanding. The company’s gross profit rose 27% year over year (YOY) to $2.91 billion. At the same time, it generated $728 million in adjusted operating income, representing a 25% margin on gross profit. It’s the sum of those two percentage increases that exceeds 40, putting it well beyond the industry “rule.” In other words, growth in the revenue it keeps and how efficiently it turns that into income are both climbing in tandem at admirable rates.
Overall, revenue for the quarter came in at $6.06 billion, up 5% YOY. And as the numbers showed, those revenues are flowing to the bottom line. Adjusted diluted earnings per share rose 52% to 85 cents, well ahead of the company’s own internal guidance. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a record $1 billion for the quarter. On the surface, these numbers were nothing but solid.
Cash App Leads While Square Provides Stability
Block is powered by two distinct but complementary businesses. On one side is Cash App, the consumer-facing mobile platform that lets millions of Americans send money, invest in stocks, buy Bitcoin, and access basic banking services. The other side is Square, the merchant-services platform that helps small and mid-sized businesses accept payments, manage inventory, and run payroll.
In the first three months, Cash App was the star. Its gross profit jumped 38% YOY to $1.91 billion, or about two-thirds of the total, fueled by deeper engagement with financial-services products like the Cash App Card and banking features.
Square was solid but grew more steadily at a 9% pace to a $982 million profit. The combination of its consumer arm growing and its merchant arm steady is what gives Block its long-term appeal.
In light of the results, the company lifted its full-year 2026 targets to 19% gross profit growth, $12.33 billion in total gross profit, $3.34 billion of adjusted operating income, and 62% adjusted earnings per share growth. Embedded in that guidance is Block’s strategic bet on artificial intelligence, which it claims will improve personalization, sharpen risk management, and uncover new revenue opportunities.
Restructuring and AI Bring New Risks
There is a footnote worth knowing, though. On a stricter accounting basis, Block did report a GAAP net loss attributable to stockholders of $309 million, and a GAAP operating loss of $172 million. Its unadjusted net loss came to 52 cents per share.
That gap between the glowing adjusted numbers and its unadjusted losses stemmed primarily from $852 million in restructuring costs and other one-time expenses. More than half of the charges came after a dramatic announcement in February from Jack Dorsey, Block’s chairman, co-founder, and Block Head, as the company calls him. Dorsey said Block would be laying off 40% of its workforce as it shifted work to artificial intelligence. The company explained in early April that 100% of Block employees were now using AI tools to do their work.
But as part of that quarterly charge, the company also disclosed it was setting aside $240 million in reserve in light of an ongoing Department of Justice probe into Cash App’s compliance and governance practices.
Wall Street Likes the Story But Has Concerns
All this news had the stock bouncing. Block’s shares are about 20% higher than a year ago, which was before it joined the S&P 500, but only up around 7% year to date. The impressive earnings results for the quarter led to an immediate 10% jump in the stock price, but investors raised concerns about some areas.
The $6.06 billion in revenue, though up 5%, missed even higher expectations. The unadjusted GAAP loss justifiably unnerved some investors, and the reserve for a possible DOJ settlement also weighed on sentiment.
Analysts who cover Block are broadly optimistic but measured. The consensus rating is a Moderate Buy, with 30 analysts recommending the stock as a Buy, six calling it a Hold, and only one suggesting Sell. The average 12-month price target sits at $84.94, implying about a 20% upside from a recent trading price near $70. The most bullish target among the forecasts reaches $100.
Competition and Valuation Still Matter
Given its performance, Block is showing good reason for enthusiasm. But it’s also showing risks. The company operates in a fiercely competitive landscape. Cash App faces well-funded rivals, including Venmo by PayPal (NASDAQ: PYPL), as well as Chime (NASDAQ: CHYM), and SoFi (NASDAQ: SOFI) on the neobank side. Square competes against traditional bank-owned merchant services and other merchant platforms, including Clover by Fiserv (NASDAQ: FISV), Toast (NYSE: TOST), and the point-of-sale offering by Shopify (NASDAQ: SHOP).
There is also the question of regulatory exposure. Cash App’s Bitcoin trading and its newer financial-services features are in an environment that could shift unpredictably. And the company’s GAAP losses, however explainable, leave it vulnerable if investors shift their focus.
The valuation itself is not necessarily cheap. Block trades at a real premium to conventional payment processors. That premium is defensible as long as gross profit continues its march upward but might leave little margin for error if it slows.
In the meantime, though, Block is certainly worth a penciled-in spot on the buy list for growth-oriented investors. Just know the risk, watch the numbers, and don’t send all your cash.
The article "Block’s Pivot to Profits and AI Is Turning Heads" first appeared on MarketBeat.
