Block’s spending rise despite 40% workforce cut leaves analysts weighing growth prospects

Jack Dorsey-led Block Inc is expected to increase its operating expenses in the second half of the year despite cutting roughly 40% of its workforce in February, leaving analysts to question whether the spending will translate into real growth.

Mizuho estimates that Block's adjusted operating expenses will rise from $4.48 billion in the first half to $4.56 billion in H2 based on the company's guidance. The bank's analysts, led by Dan Dolev, said its own model suggested the workforce reduction alone could have lowered Block's quarterly operating expenses by around 18%.

"Although Block’s second quarter was very solid, a key question regarding operating expenses is still open," the Mizuho analysts wrote in a Thursday note.

Block (XYZ) tied the spending to initiatives it sees as offering potentially strong returns, including investments in sales, Cash App products and artificial intelligence infrastructure.

Mizuho maintained its Outperform rating and $100 price target but questioned whether further investments might be needed to boost stagnating Cash App monthly active user numbers.

William Blair analysts were a bit more bullish in their outlook, describing Block as a "Lazarus story."

The team's analysts, led by Andrew Jeffrey, highlighted Block's better-than-expected second quarter results that included gross profit beating its estimate by 3.4% and adjusted operating income that came in nearly 20% above its forecast.

William Blair also expects Block to approach the “Rule of 50,” with its annual gross profit growth rate and adjusted operating income margin adding up to roughly 50% by the end of the year.

The firm also reiterated an Outperform rating on Block's stock. Shares were trading approximately 5% lower on Thursday morning.