Afterpay owner Block reveals healthy result but at the expense of 1000 jobs

Afterpay owner Block’s profit guidance has exceeded analysts’ expectations by $US200m but that’s come at the expense of 1000 jobs and an aggressive switch to AI.

Block co-founder and chief executive Jack Dorsey. Picture: Bloomberg

Afterpay owner Block has axed 1000 jobs as it aggressively adopts artificial intelligence systems, allowing it to swing to a quarterly profit amid a bleak economic outlook.

Chief executive and co-founder Jack Dorsey said the $US41.73bn ($63.49bn) fintech was focused on growth and that it offered a suite of products akin to the world’s biggest bank, JPMorgan Chase.

Block’s shares soared 13.2 per cent to $US76.95 in after-hours trade on Wall Street on Thursday after its latest quarterly earnings beat analysts’ estimates. The company raised its full-year profit guidance by more than $US200m to $US2.63bn, representing 15 per cent growth.

Block has slashed its total workforce by 7.7 per cent in the past year, joining a wave of lay offs that have swept across the sector. PayPay and eBay each have shed 9 per cent of their workforce.

Members of the so-called “magnificent seven” US stocks – Amazon, Alphabet and Microsoft, – have also announced redundancies in the first two months of this year, while Australia’s biggest telco, Telstra has left the door open for job cuts as it shifts more tasks to AI.

But Mr Dorsey said Block’s redundancies would make the company stronger.

“We’ve done a lot recently to reduce our costs. Now we’re going to focus on growth,” he said.

“We’re under our 12,000 people cap. This constraint forces us to prioritise more impactful work, which we believe will lead to growth. We’re going to operate under this cap until we feel it’s holding us back, which is likely years out, and continue to look critically at our organisation and priorities.”

Block, formerly known as Square, outlined four priorities: “Platform, local, AI, and banking” in November.

“You all have been hearing AI constantly and … in terms of efficiency,” Mr Dorsey told investors during a call on Friday.

“But it’s going to be extremely impactful for us as we look at everything that we’re doing, and all the tools that we’re building.

“It allows us to learn much faster, allows us to ship faster, allows us to correct mistakes much faster, and really be ahead of the market where we think our strength is, which is creativity and bringing all these very complex systems together.”

In the December quarter, Block launched a “conversational” AI tool for its customer-facing staff to improve efficiency. This tool autopopulated answers to frequently asked seller questions for Block’s sales and customer service teams and aggregated data in a “concise, easy-to-read format”.

“This reduces the amount of time these teams spend researching and retrieving information across databases so they can focus on serving our sellers,” Mr Dorsey said.

Block is now focused on growing its Cash App business, which allows people to transfer money to one another via a mobile phone app.

Block acquired buy now, pay later platform Afterpay for $39bn in 2022.

Mr Dorsey said he wanted to lift Cash App to become one of the top providers of banking services to US households, which earn up to $US150,000 per year – a segment that represented about 80 per cent of consumers.

“How are we going to achieve this? We have a three-part strategy: banking our base, move up the market by serving families and build the next generation social bank,” he said.

“The majority of our near-term focus and current investments are on the first, where we see the most direct opportunity to drive meaningful top-line growth for Cash App.”

Mr Dorsey said two million people were depositing their paycheck’s into Cash App each month as of December, representing 3 per cent of its transactions.

“In the same way that peer-to-peer payments was a gateway to the Cash App Card, we see the Cash App Card as a gateway to our customers adopting Cash App as a primary banking solution.”

Mr Dorsey said Block’s banking products have seen “meaningful adoption, leading to strong growth”.

“In the fourth quarter of 2023, 20 per cent of Square gross profit in our international markets came from banking products,” he said.

“With nine products within the market are only going to get stronger. It’s the thing that truly differentiates us from our peers. We not only have an ecosystem that serves our entire business but we have the equivalent of business banking.

“Just like JPMorgan Chase branches they were going to in the past, they can get a card, they can get a credit card, they can get a line of credit, they can get a loan, as we’ve been doing for quite some time.

“And that it’s integrated all into one stack with one app download. It’s hugely unique and also hugely important to ourselves. So I think it’s going to be amazing.”

But E&P managing director of technology and gaming research Paul Mason said, while he believed Block’s would be “well received” Cash App was performing well while Square underperformed.

“This is due to Afterpay being pushed into Cash App earnings 100 per cent (it used to be 50/50) but Block not having provided disclosure to fix historical information up until today,” Mr Mason wrote in a note to investors.

Cash App segment revenue surged 30 per cent to $US3.91bn during the quarter. Square, meanwhile, rose 11 per cent to $US1.81bn.

Mr Dorsey said allocating 100 per cent of Afterpay earnings into Cash App delivered a greater benefit for the company.

“We’ve been doing a bunch of work since we first acquired Afterpay. As you all know, we had more or less split the org between Square and Cash App. We realised last year that that was incorrect, and that we should put the majority of it within Cash App because that’s where the greatest benefit is going to be.

“We have an incredible asset and Afterpay. We have an incredible asset in the Cash App Card and that distribution. All the financial tools that Afterpay has created will be right within the Cash App Card.

“We want that same sort of feeling for buy now, pay later on the card itself.”

Block swung to a $U178m profit in the three months to December 31 versus a $US114m loss in the previous corresponding period. Revenue leapt 24 per cent to $US5.77bn.

In the year to December, adjusted earnings before interest, tax, depreciation and amortisation doubled to $US1.79bn, beating analyst consensus estimates of $US1.67bn.