Block's (XYZ) Q1 results missed estimates due to gross profit weakness caused by softer inflows and Cash App Card spend, RBC Capital Markets said late Thursday in a research note.

The company reported Q1 adjusted earnings of $0.56 per diluted share, compared with analysts' estimate of $0.97, and revenue of $5.77 billion against estimate of $6.19 billion.

"Cash App disappointed on nearly every metric with both revenue and gross profit missing due to inflows and card spend weakness, which we believe is tied to pressure on the low-income consumer," RBC said

The payment services company lowered its full-year 2025 guidance for gross profit citing macro weakness and high exposure to lower-income consumers. However, the company showed confidence for its second-half 2025 gross profit, "calling this quarter as the bottom," RBC noted.

RBC said the path to "rule of 40," a metric used to assess the health of software-as-a-service companies, is off the table for 2025 after the company meaningfully reduced guidance, signaling a more cautious macro outlook.

With completely flat year-over-year monthly active users, RBC sees more woes for the company's Cash App. "Cash App is faced with a need to drive monetization via Borrow, which in this environment could result in higher loss ratios," RBC added.

RBC reduced its price target on the stock to $63 from $86, while maintaining an outperform rating.

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