Block's Stock Drops Amid Concerns Over BNPL Growth
New York, Feb 24 (Reuters) - Payments processing giant Block's (XYZ) stock plunged 8% in premarket trading on Friday amid growing investor uncertainty about consumer spending.
The slowdown in spending growth has raised concerns about Block's strategy of expanding its buy-now, pay-later (BNPL) lending offerings to drive profits by 2025.
Block's Cash App, a mobile peer-to-peer payment service, reported slower gross profit growth of 16% in the holiday quarter, down from 25% a year ago.
The digital payments landscape has intensified with tech giants like Apple and Google increasing their market presence, while industry heavyweights such as PayPal have expanded their offerings to retain customers in a cautious spending environment.
"The long-term economics of the Cash App business remain uncertain," said Brett Horn, senior equity analyst at Morningstar. "Its growth trajectory is still in question."
Block's Square unit, targeting businesses, also reported a slowdown in gross profit growth to 12% in the quarter, compared to 18% in the previous year.
Now or Never for BNPL
Despite the recent setbacks, Block aims for a substantial increase in gross profit by at least 15% year-over-year by 2025, with a 240 basis point margin expansion.
Analysts see BNPL expansion as a critical growth driver for Block, labeling 2025 as a "now or never" year for the company.
The BNPL market is expected to soar to over $160 billion by 2032, with major retailers like Walmart, Target, and Amazon offering the service to attract younger consumers with limited access to traditional credit.
Block's unique position with its quick approval process, easy access, and fee-based revenue model gives it an advantage over traditional banks, which face tighter regulations and higher risk assessment standards.