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Highlights
- Block (SQ2) drops 26% after profit downgrade
- First-quarter results trail analyst expectations
- Zip (ZIP) also down as sector faces pressure
Block Inc. (ASX:SQ2), the parent company of Afterpay, witnessed a steep decline on the ASX after releasing its first-quarter earnings, which fell short of market expectations. The digital payments firm also revised its full-year profit forecast downward, leading to a sharp reaction from investors and dragging down related companies in the sector.
Block now anticipates gross profit for the year to rise by 12% to $US9.96 billion, a downgrade from its earlier projection of at least $US10.22 billion. This revision comes as the company’s Cash App unit experienced weaker-than-expected growth. Spending via the Cash App card fell short of internal forecasts, contributing to the more cautious financial outlook.
The company posted adjusted net income of US56¢ per share for the first quarter, missing Bloomberg's analyst consensus of US88¢. These underwhelming figures triggered a heavy selloff, with shares tumbling 26% to $68.17 during early Friday trading on the ASX. In US after-hours trading, the stock also fell 18.4%, reflecting investor concerns across both markets.
The broader sector also felt the impact. Zip Co Ltd. (ASX:ZIP), a peer in the buy now, pay later space, saw its share price decline by 9% to $1.57. The ripple effect highlights how investor sentiment can shift rapidly across related fintech and consumer credit providers following disappointing earnings from a major player.
While growth-oriented technology firms have generally been out of favour amid tighter financial conditions, some investors are rotating towards more stable segments like ASX dividend stocks, which may provide relatively predictable returns during periods of volatility.
The sharp drop in Block’s valuation also has implications for the broader ASX200 index, where tech stocks form a growing yet still volatile component. As the index adjusts to earnings-driven movements in major firms like Block, sectors offering greater income stability may gain more attention in the near term.
With digital payment trends under pressure and consumer spending patterns shifting, the market appears to be recalibrating expectations for fintech performance. The upcoming quarters will be key for Block and others in the space to restore investor confidence and realign with growth trajectories.
