Block CEO Jack Dorsey plans aggressive moves with AI, ChatGPT

Bloomberg

Block has launched several new products in recent months to boost its profile among merchants, setting the stage for its next steps involving advanced artificial intelligence and open development techniques.

"How many times in this past quarter did you hear AI or ChatGPT versus all other quarters?" said Jack Dorsey, Block's CEO, during Thursday's earnings call. 

For the quarter ending March 31, Block (formerly Square) reported revenue of $4.99 billion, up about 26% from $3.9 billion the prior year. That was better than FactSet's estimates of $4.6 billion. Block also reported earnings per share of $0.40, which beat analyst estimates of $0.35. The company said it has reduced marketing spending and slowed hiring, while volume on its Cash App has remained strong.  Block raised its full-year outlook for earnings before interest, taxes, depreciation and amortization (EBITDA) to $1.36 billion, from $760 million. 

Like many payment companies, Block has added services that aren't directly related to payment acceptance as a way to grow relationships with sellers and boost revenue beyond transaction fees. Part of that strategy is finding new uses for AI, such as customer service, marketing or analysis. 

Advanced AI technology, such as chatGPT, has drawn a lot of attention in 2023, with banks and other financial technology firms such as Block's rival Stripe, exploring new ways to use AI. OpenAI, a Microsoft-backed research lab, launched ChatGPT, which is a more granular form of natural language. ChatGPT is one of the fastest growing consumer applications in history, drawing hundreds of millions of users in a few months.  

"This tech is moving faster than anyone can comprehend," Dorsey said.

Block has always used AI and is seeking opportunities to apply advanced AI across its product set, Dorsey said, naming Tidal — the music-streaming service that Block acquired from Jay-Z in 2021 — as an example of a service that will use ChatGPT and other new forms of AI. "We will accelerate the use of AI across all of our products and services," Dorsey said. 

ChatGPT has drawn controversy, given concerns around its accuracy. That has led some firms, including Citigroup and Bank of America, to restrict its usage, while some technology leaders  warn that AI's overall use should be limited.

Open protocols, which enable more open access to web development, could mitigate some of these AI challenges by decentralizing and expanding the number of people who are working on the technology, Dorsey said. Block's crypto initiative, TBD, is working to expand its use of open protocols, and the concept will also play a role in Block's expansion in emerging markets such as Africa and Asia Pacific.  

Block's diversification comes as the company tries to recover from a slump in 2022. Like many financial technology firms, Block's stock rose quickly in 2021 during the rush to digital commerce, and has corrected in the two years since. The company has traded as high as $268 per share in June 2021, slipping to a low of $54 per share in September 2022. On Friday morning it was trading at about $60.40. 

Block is benefiting from its focus on omnichannel services, such as enabling order management at the point of sale and eliminating manual aggregation of online and in-person orders, according to Zacks' research note. Other business services, such invoices and its e-commerce application programming interface, are also benefiting the company, as Block deepens its focus on small businesses following its partnership with accounting software firm Sage, according to Zacks. 

Slower consumer spending in the face of high inflation, and a reduction in bitcoin trading, posed challenges to Block's earnings. Block gets a large portion of its revenue from processing bitcoin trading via its Cash App (about $2.2 billion in the quarter), and it has invested heavily in blockchain technology through its TBD division.

In April, Block's merchant services business, which still uses the Square brand, launched dozens of new products. It also redesigned or reorganized existing products that aim to broaden the company's relationships with merchants. 

These products include Waitlists, which enables sellers to offer waitlists for appointments and services, a subscriptions feature that enables online buyers to subscribe to items or services on a recurring basis, and a suite of restaurant management tools. 

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It also launched Personalized Order Screens to highlight order histories, item recommendations, offers, and loyalty and reward status. 

Sellers using Square Online Checkout to create payment links, buy buttons, or QR codes can now accept coupons. Square Invoices has added Afterpay's buy now/pay later option. The payment company has also updated its estimate and buyer payment pages to allow an accepted estimate to be auto-filled on an invoice. 

Other payment firms are ramping up, providing competition as merchants look to consolidate technology relationships as a cost-cutting move. 

Stripe this spring has released a series of products that aim to broaden its utility beyond payments following a dip in Stripe's valuation. And American Express plans to get more aggressive in pursuing small business, particularly if the fintechs that serve small businesses struggle. 

Square's strength is insight into the customers's cash flow, which comes from the company's mix of card acceptance and invoicing, which enables Square to see everything coming in and out of a business, said Ian Benton, a senior analyst at Javelin Strategy & Research. 

"The fact that these companies are creating more comprehensive accounts, products and services than they have historically, essentially competing directly with the traditional banking relationships, means they're a viable option for businesses to not only get a line of credit or loan, but also process payments, hold cash, spend, invoice and more," Benton said.