Nearly half of the layoffs, stock price increased by 23%

Written by: Cathy

On February 26, 2026, Block released its Q4 earnings report, with the stock price soaring over 23% after hours. Its market capitalization increased by approximately $2.4 billion overnight.

On the same day, 4,000 employees received layoff notices.

This stark contrast is the most brutal commentary of our current era.

01 A Letter Sparks Silicon Valley

It all started with a letter.

That day, Block co-founder Jack Dorsey issued an open letter to all employees. He wrote, “Smart tools have changed what it means to build and run a company. A significantly downsized team, using the tools we are building, can accomplish more and do better.” The implication is clear: the company has decided to achieve higher productivity with fewer, leaner employees.

This is not a company struggling and tightening its belt. In Q4 2025, Block’s gross profit was $2.87 billion, up 24% year-over-year; total gross profit for the year exceeded $10.36 billion. Cash App’s gross profit grew 33% YoY, with an adjusted EPS of $0.65, surpassing analyst expectations.

The financials are strong, the stock price surges, and then 40% of the staff are laid off.

No one has ever done this kind of logic before.

Block’s employee count grew from 3,835 at the end of 2019 to over 10,000 during the pandemic expansion. Dorsey admits in the letter that this was a mistake in growth judgment. The emergence of AI gave him the opportunity to correct that mistake. It’s not that the company has weakened; rather, AI makes the company stronger. Dorsey calls this “Native Intelligence” — a way to redesign the company around AI as the core productivity unit.

02 AI Is Already Doing the Work for You

The “smart tools” Dorsey mentions are not referring to general interfaces like ChatGPT.

Over the past two years, Block has quietly built an internal AI ecosystem called “Goose.” It integrates deeply with over 150 internal software and data services through a Model Context Protocol (MCP), capable of reading real-time financial data and executing operations directly within code repositories, invoice systems, and data dashboards, not just generating text suggestions.

Numbers speak volumes: in customer service, AI currently handles about 60% of Cash App cases; in engineering, since introducing AI-assisted coding tools in September 2025, each engineer’s output of production code has significantly increased.

In Q3 2025, Block launched “G2,” an agent-based interface built on Goose. It completely changed how employees work — the remaining 6,000 employees no longer perform data entry or initial coding but direct AI clusters to complete complex tasks via the G2 interface. Legal document review, initial HR screening, preliminary video editing — all are now handled by G2.

Humans have shifted from “operators” to “curators.”

The newly launched “Neighborhoods” feature also demonstrates the efficiency of this model — from concept to launch in less than six months. In Dorsey’s vision, 6,000 people plus Goose can accomplish what 10,000 used to do. This logic is the real foundation behind the layoffs.

03 The “Gentle Cut”

Compared to Elon Musk’s layoffs after acquiring Twitter in 2022, Dorsey’s approach is entirely different.

Musk’s method was: abruptly shutting down systems, issuing “hardcore” ultimatums, offering only the legal minimum compensation, and then facing numerous lawsuits.

Dorsey’s approach was: starting with a base salary compensation of 20 weeks (adding one week per year of service, reportedly industry standard is only 12-14 weeks), six months of full healthcare coverage, a $5,000 cash transition subsidy, extending stock vesting to the end of May 2026, and allowing employees to keep company-issued computers and mobile devices.

This plan is almost the ceiling in tech layoffs history. But this “cut” is not without its sharp edges.

According to feedback from Wired magazine and the internal anonymous platform Blind, Block’s internal culture is on the “brink of collapse.” Dorsey accuses some employees of “slacking,” blaming structural optimization on individual performance, which has caused widespread anxiety among remaining staff. Those who stay are burdened with doubled workloads and constantly worry whether the next “AI performance review” will target them.

Generous severance packages, on one hand, reduce the risk of class-action lawsuits; on the other, help Dorsey maintain a “decent employer” image publicly, shifting focus from the reality of 4,000 families losing their livelihoods to the AI efficiency narrative. This “cold business decision” wrapped in an “emotional all-hands letter” forms a complex management case.

04 Why Wall Street Cheers for Layoffs

The logic of capital markets is faster than anyone.

The stock surged 23% after hours, adding about $2.4 billion in market value. Roughly speaking, each employee laid off created about $600,000 in book value for the company.

Long-term estimates are even more astonishing. In 2026, Block expects to generate approximately $12.2 billion in gross profit. With fewer than 6,000 employees, the average gross profit per person would approach $2 million, far surpassing top tech giants like Google and Meta.

In 2026, with the Federal Reserve maintaining high interest rates and tech companies facing tighter financing, the market’s focus has shifted from “growth premiums” to “profit premiums” and “unit productivity premiums.” Block has successfully exceeded the “40 Principle” (where revenue growth rate plus profit margin is at least 40%) and completed a $790 million stock buyback in Q4, with a total buyback of $2.3 billion for the year.

This script is understood by all board members.

Block’s case may force the entire fintech industry to reevaluate its labor cost structure. “Layoffs in the name of AI” are becoming an attractive strategic script. If CEOs find that announcing “AI-driven layoffs” can boost stock prices by over 20%, large-scale white-collar layoffs will no longer need to be justified by recession fears.

05 Summary

The shift from “layoffs due to weakness” to “layoffs due to strength” presents an unprecedented challenge to white-collar job security. Block is just the first to openly state it.

When a company cuts 40% of its staff but its stock price rises in the opposite direction, it sends a clear signal to the market: in future company valuations, the number of people is no longer an asset but may be viewed as an “operational friction” that can be optimized through technology.

Whether Dorsey’s bold gamble succeeds depends on whether the remaining 6,000 employees can truly master Goose, whether AI-assisted code can withstand the test of time in complex systems, and whether a lean company can continue to innovate at speed.

The answer may only be known after a few years.

But this experiment has already begun, and no one knows where it will end.