Block, the company co-founded by Jack Dorsey, has made a significant move by announcing workforce reductions of approximately 40%, trimming its headcount from over 10,000 to just under 6,000. Dorsey explicitly attributed this decision to the transformative impact of “intelligence tools” on business operations. He suggested that this strategic shift, driven by advancements in artificial intelligence, is poised to become a trend across corporate America, with a majority of businesses expected to reach similar conclusions within the next year.
Despite the substantial layoffs, Dorsey emphasized that the company’s underlying business remains robust, with growing gross profit, an expanding customer base, and improving profitability. He articulated this sentiment in a post on X, stating, “Our business is strong… But something has changed.”
This announcement was met with investor enthusiasm, as evidenced by a roughly 25% surge in Block’s stock in after-hours trading following the announcement, with shares closing up 17% by Friday. Block also provided an earnings forecast for the year that exceeded analyst expectations, even though its quarterly results were largely in line with projections.
Financial analysts have reacted positively to the news. Morgan Stanley analysts upgraded Block to “overweight,” citing the potential for AI-driven efficiencies to enhance profitability. Goldman Sachs analysts raised their price target, suggesting that these cuts could elevate Block’s workforce productivity to the forefront of the fintech sector. Wells Fargo maintained its “buy” rating, characterizing the quarter as “chock full of positive surprise.”
Block anticipates incurring restructuring costs ranging from $450 million to $500 million, with the majority of these expenses front-loaded in the first quarter and the bulk of the workforce reduction completed by mid-year. Dorsey stated his preference for a decisive, single wave of cuts rather than a phased approach, explaining, “Repeated rounds of cuts are destructive to morale, to focus, and to the trust that customers and shareholders place in our ability to lead.”
### AI-Driven Efficiencies
This move by Block significantly eclipses recent AI-related workforce adjustments at companies such as Pinterest, CrowdStrike, and Chegg. It arrives at a time when the discourse surrounding artificial intelligence and its impact on employment is capturing Wall Street’s attention.
Earlier this week, Citrini Research published a widely discussed hypothetical scenario titled “The 2028 Global Intelligence Crisis.” This thought experiment projected a future where AI-driven layoffs could instigate a negative feedback loop, leading to widespread white-collar displacement, a contraction in consumer spending, and systemic financial damage. While the report faced criticism, notably from Citadel Securities, the premise that AI-induced workforce reductions would first manifest in strong, profitable software companies now has a tangible real-world case study in Block’s actions.
Block is now targeting a gross profit per employee exceeding $2 million, a substantial increase compared to pre-pandemic levels. Goldman Sachs analysts observed that the cuts appear to be concentrated in engineering roles rather than revenue-generating or regulatory positions, aligning with Block’s strategy to leverage its internal AI platform, Goose, to assume these responsibilities.
Andrew Anagnost, CEO of Autodesk, also highlighted the importance of revenue per employee as a key efficiency metric for management. He indicated that Autodesk plans to reduce hiring due to efficiency gains, with AI contributing significantly to engineering productivity.
However, not all observers are convinced by Dorsey’s explanation. Skeptics pointed to Block’s rapid expansion from approximately 4,000 employees in 2019 to nearly 13,000 during the pandemic. Dorsey acknowledged this rapid growth as a misstep, referring to it as “overhiring” and indicating that the correction was initiated in mid-2024. Goldman Sachs noted that the current reduction effectively brings Block’s headcount back to 2020 levels.
This situation draws parallels to Dorsey’s prior tenure at Twitter, where significant hiring occurred before Elon Musk’s acquisition led to drastic workforce reductions. Analysts at Piper Sandler maintained an “underweight” rating on Block following the announcement, citing an increase in the company’s transaction losses as a percentage of gross profit. They expressed skepticism about Block’s long-term growth prospects despite the positive investor reception to the current “right sizing” strategy.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/19534.html
