Block's AI-driven staff purge comes with a warning

• Key insights: Block plans to lay off about 40% of its workforce, with CEO Jack Dorsey stating bluntly that improvements in artificial intelligence are quickly changing how companies will operate in the future. 
• Expert quote: "Something has changed. We're already seeing that the intelligence tools we're creating and using, paired with smaller and flatter teams, are enabling a new way of working which fundamentally changes what it means to build and run a company."
• Forward look: Dorsey predicted other companies will make similar moves as they come to the same realization he said he has. 

Amid speculation about the impact artificial intelligence could have on employment, Block became an early company to quantify the impact. 

The payments company said it's laying off more than 4,000 employees, about 40% of its headcount, mostly during the first quarter. This will cut Block's staff to just under 6,000. 

In announcing the layoffs, Block CEO Jack Dorsey did not mention corporate underperformance – his letter to shareholders said "2025 was a strong year" in the second paragraph. But it was the first paragraph that will draw attention across all industries. 

David Paul Morris/Bloomberg

"The core thesis is simple, intelligence  tools have changed what it means to build and run a company," Dorsey said in his letter. "I don't think we're early to this realization. I think most companies are late." 

Dorsey also predicted other companies would make similar adjustments, and he was hoping to get out in front of the trend. "I'd rather get there honestly and on our own terms than be forced into it reactively."

Not about corporate strength

In a separate social media post, Dorsey said Block's business is strong, gross profit continues to grow and the company is serving more customers. 

"But something has changed. We're already seeing that the intelligence tools we're creating and using, paired with smaller and flatter teams, are enabling a new way of working which fundamentally changes what it means to build and run a company. And that's accelerating rapidly. I had two options: Cut gradually over months or years as this shift plays out, or be honest about where we are and act on it now. I chose the latter. Repeated rounds of cuts are destructive to morale."

Dorsey said a cut of this size carries risk "but so does standing still."Block has undergone repeated rounds of cuts in recent years. Block forecast this week's cuts earlier in February. And Block fired 8% of its staff in 2023 and another 8% in 2024. 

How it's playing

The immediate market response was positive. Following the current layoff announcement, Block's shares rallied 16% on Friday, after being up more than 24% in premarket trading.  

"The company is the first fintech we cover to reassess the fundamental nature of its workforce and how it will compete," analysts at William Blair said in a research note. "We think shares' rally suggests that the market approves of its aggressive move to be more focused, nimble, and profitable."

Analysts noted risks to the company's ability to function with a lower headcount, and impacts on the broader economy. 

"Block's headcount reduction is a transformative reset that materially accelerates the margin expansion trajectory beyond prior expectations while allowing flexibility to reinvest in growth," Keefe, Bruyette & Woods said in a research note. 

Early benefits from AI tools at Block include improving product velocity and customer engagement, which combined with investments in sales and marketing are yielding solid top-line trends, according to KBW.

"While execution risk cannot be dismissed, the magnitude of the cost reset positions the company for earnings upside potential over the medium term," KBW said. 

Investors could be conflicted about the sudden and massive downsizing, according to analysts at TD Cowen. "In the near term, it translates to higher financial projections," TD Cowen's analysts said. "Thereafter, comes the execution risk questions as Block navigates with nearly half its workforce. And further down the road, comes the implications for commerce-based businesses."

Analysts at William Blair did not address Block's downsizing directly. The firm did note that Block's shares have "underperformed" in the past 12 months, and trades at parity with other payment companies such as Fiserv, Global Payments and PayPal. "This is despite Block growing organic gross profit approximately three times faster than app peers." 

Dorsey announced the layoffs during a strong quarter for Block. For the quarter ending Dec. 31, Block reported adjusted earnings per share of 65 cents and diluted net income per share of 19 cents. The company reported $6.25 billion in revenue, compared to London Stock Exchange analyst estimates of 65 cents on $6.24 billion in revenue. Gross profit was up 24% from the prior year to $2.87 billion. Block projected $12.2 billion in gross profit with the adjusted EPS of $3.66 for 2026.

The layoffs are expected to cost Block between $450 million and $500 million, mostly due to severance payments and employee benefits on other costs related to share vesting, according to Block. 

"2026 outlook is better than our expectations and ahead of the preliminary outlook shared at the investor day. First quarter outlook is also better, but more of the profitability upside related to the headcount reduction is expected in the second quarter and into the second half," KBW analysts said.