Block Is Back Thanks to Banking the Base

• Aggressive repurchase posture, renewing buyback agreement for 16.2% of outstanding shares.

• 58 million monthly actives on Cash App, with users who deposit a paycheck or spend $500+ per month through CashApp are 8.3 million up 18% year over year.

• 134% year over year growth in Cash App Borrow originations, maintaining loss rates below 3% while generating an approximate 30% return on invested capital.

• $67.2 billion in Gross Payment Volume (GPV) for Square, up 12% year over year, with mid-size enterprises now representing 45% of total volume.

• Management has implemented an absolute headcount cap of 12,000 employees and reorganized the company into a functional structure (centralized Engineering and Sales) to improve workforce crossover.

Investment Thesis

$Block, Inc.(XYZ)$ is a payment facilitator and fintech company. Block operates on both ends of the architecture, operating Square for merchants and Cash App for consumers collectively processing more than $280 billion in payments annually for merchants with 58 million monthly active users on the consumer side. Despite re-aligning company goals with improving margins and capturing wallet share, the stock has fallen -27.5% since the start of 2025.

Largely, the price decline has been driven macro conditions and slowing user growth. However, we believe that the market is underestimating the improving economics of the business and durability of the core business over the long term. We believe that Block still has a compelling upside for longer-term oriented investors. 

Estimated Fair Value

EFV (Estimated Fair Value) = EFY27 EPS (Earnings Per Share) times P/E (Price/EPS)

EFV = E26 EPS X P/E = $3.96 X 24.5 = $97.02

SeekingAlpha Analyst Consensus

Merchant Business

Square is the POS and payment facilitation arm, making up 36.6% of revenues. Historically, Square targeted micro merchants and has now begun to move up the payment ladder toward customers with annual payment volumes of over $500,000. Currently, Micro merchants processing less than this represent 55% of gross payment volume. Square directly competes with Toast and Clover in the SME hardware space and has aggressively targeted international expansion to compete more broadly with Adyen. International gross payment volume was up 26% year over year for the quarter ending September 2025, with overall YTD gross payment volumes up 9.6%. For the quarter ending September 2025, the Square segment grew revenues by 9.4%, with gross margin flat at 47.0%.

NVA – New Volume Added

International payment volume now represents 21% of total gross payment volume, up from 18% a year ago. This expansion has been driven by an aggressive sales operation, including telesales and field representatives. These sales-lead originations, as opposed to customer-led originations, has grown to 45% of the sales funnel.

The more aggressive sales-led onboarding is an area where Square has focused, with management estimating their own selling opportunity has a 23% CAGR to 2028.

Additionally, parting from historical norms, Square has begun to embrace third party channels such as utilizing Sysco to sell Square POS to their customers or adding GrubHub directly into the Square POS. Currently these channels represent less than 1% of new volume added in the US, but management aspires for these to grow to 11% for both the US and international markets. We believe that this is a more efficient way to acquire upmarket merchants already in the >$500,000 annual payment volume cohort, as they are likely to require a larger sales team to gain leads.

The core of Square’s offerings is POS hardware and software, earning income based on a percentage of gross payment volume. Larger customers can opt in to purchase subscription model add-ons or customers can access business financial services such as loans, payroll management, and marketing tools. Notably, management reported in the quarter ending June 2025 that retention was the highest it has been since mid-2023 which we believe indicates that some of the newer offerings like AI-agents and loyalty program management has driven further stickiness with large volume customers.

It should be noted that unlike other processing focused peers, Square does not offer separate payment processing. Square’s ecosystem is highly insular, and it is difficult to only adopt a single part of the business unlike a peer like Adyen. While we believe this increases the cost of acquiring customers, it also likely creates a high level of switching costs that competitors cannot match.

Customer Side

CashApp is the largest consumer-facing product and is a digital wallet allowing consumers to send P2P payments, and more recently financial services offerings such as traditional banking products, investing, and BNPL. It represents 62.1% of revenues, though is inflated by bitcoin volumes which are fully counted as a revenue item even if only a small fee is recognized.

For the quarter ending September 2025, the CashApp ecosystem had 58 million monthly active users (measured by moving money through the app at least once), up 2% year over year. More granularly, the users who deposit a paycheck or spend $500+ per month through CashApp are 8.3 million up 18% year over year. The number of active CashApp cards allowing users to spend CashApp balance or withdraw cash at ATMs is 26 million, up 6% year over year. The inflows per active account are up 11.93% year over year, with an average of $1,366 per quarter, with gross profit per active user up 25% year over year to $94. From the published KPIs, the core offering of P2P wallet are mature. However, many of the monthly active customers are single product in the P2P offering, with just 14.3% of users utilizing financial services. These users generate $250/year in gross profit per average user compared to just $87/year in gross profit for typical customers.

Gross profit per user by primary product, Investor Day 2025.

Drawing in these customers is done through a gamification system, showing users progress toward accessing ‘Cash App Green’, which unlocks benefits such as 3.5% interest on cash deposits, Cash App Borrow, and overdraft protection. Sell through also comes in the form of allowing users to spend bitcoin directly at merchants, the Cash App Card, and the AfterPay BNPL offering. This strategy has been coined ‘Bank the Base’, utilizing existing users to grow new services.

We believe that the Cash App Borrow and AfterPay BNPL offer will continue to be the largest components of growth for the bottom line for Block. The Cash App Borrow offering allows CashApp Green customers access to small loans (under $500), with originations growing approximately 134% year over year for the quarter ending September 2025 to around $22 billion in volume. While Block does carry the risk for these loans on its balance sheet the loan book turns over 17 times per year, with a ROIC of 30%, and 95% of customers return to the offering.

The BNPL offering is typically offered at checkouts when users pay with CashApp through card or the app, with a gross merchandize volume of $9.7 billion during the quarter ending September 2025, up 17% year over year. Monetization is 3.1% of GMV. The velocity of the book is slightly lower than that of Cash App Borrow, turning over around 13 times per year. Loss rates for the BNPL product are under 1% of GMV, and credit decisions are made per transaction. We expect BNPL volumes to spike into the holiday season and with the introduction of post-purchase BNPL allowing users to choose to split a purchase later.

GPV by number of users active users transact with per month.

The priority for management has been to increase engagement, as engaged users have higher retention per product. An area where CashApp excels is among teens, reporting that some 20% of US teens interacting with CashApp. Ideally, these will become fully-fledged banking customers as they age. Excluding Bitcoin revenue, revenue in the CashApp segment grew 20.7% for the quarter ending September 2025. Gross margins expanded 933 basis points, which is due to noise from shifting volumes away from Bitcoin and toward lending services.

Other

Representing less than 1% of revenues is the ‘other’ segment which is analogous to Google’s ‘other bets’ segment, with everything not related to Square or CashApp being slotted in. The largest product is TIDAL, a music streaming service. Competitive in pricing Spotify or YouTube music, it still has an uphill battle to win listening share.

The final two items are Bitcoin related. Initially an internal startup focused on building platforms for working with bitcoin Proto (formerly unnamed) reached first revenue in the quarter ending September 2025 when it sold its first bitcoin mining hardware. Partnered with this was the company’s public release of Birkey, a self-custody bitcoin wallet.

The segments overall revenue grew 8.6% for the first 9 months of 2025, with segment gross margins compressing by around 90 bps to 25.8% due to the shift toward hardware sales. Given the tightness in the hardware market due to AI hardware demand, we believe that it is likely that margins will further compress.

Risk

Merchant payment processing and facilitation is a highly competitive market. If competitors offer meaningfully better or cheaper features, Square is likely to lose customers. Given the target on micro retailers, the switching costs are low given the lack of long-term contracts. On the Cash App side, user growth has slowed with most growth coming from cross selling new services to existing users. The friction between wallet apps is low with most users with a CashApp account having at least one other (Zelle, PayPal, Venmo, Apple Cash). 

One of the largest novel risks to Block is lending risk. Instead of selling or working with an originator for Cash App Borrow or Square Loans, it has begun to hold them on their own balance sheet. While this has boosted the margin of the products, Block is now much more exposed to the downside of macroeconomic conditions. However, there may be a slight visibility advantage as they can see both sides of the consumer situation and adjust lending standards much faster than competitors.

Bitcoin exposure leads to high levels of volatility in revenues and the value on the balance sheet. For reference, the value of the Bitcoin held by Block (8,780 BTC) fluctuated from a high of $976 million to a low of $708 million during November 2025 alone. We believe the dedication to a low-margin, high volatility asset like bitcoin is reflective of a personal project of CEO Jack Dorsey rather than managing buy/sell volume for the small number (0.4% of gross payment volume) of crypto transactions.

Financials

Excluding bitcoin related revenues, revenues for the quarter ending September 2025 were up 17% year over year, as previously discussed due to a mix of new Cash App active users and gross payment volume growth. Overall margins are expanding, with total gross margin up 43.5% driven by higher-margin product lines like Cash App Borrow and disciplined workforce management. On the Opex line, sales and marketing did increase 17% year over year for the quarter ending September 2025, linked to a continued drive for Cash App customer acquisition and Square direct sales. However, for the 9 months ending September 2025, total operating expenses were down 9%.

Adjusted figures exclude SBC, restructuring, and bitcoin revaluation.

We believe that marketing expenses are likely to continue to ramp as Block targets up market vendors on Square and banking customers in CashApp. For Square, the payback period for marketing dollar spend was only 4-5 quarters, with CashApp being 2-6 quarters, which we believe is ahead of the broader market. Even still, much of the onboarding for the TTM ending September 2025 is still self-onboarding.

Workforce management has been a priority for Block since 2023 when it implemented a hard organizational cap of 12,000 employees which it hit during 2024. Management repeated during the quarter ending June 2025 that it will not add net new roles unless they are critical to operations. With hitting the employee cap, efficiency has become the name of the game with the most major organizational change moving toward a more unified operating model.

CashApp and Square now operate under a single organization which management stated during the Goldman Sachs Technology Conference in September that the new operating model has allowed them to move developers around more fluidly to work on projects as needed rather than locking them into an organizational unit. CEO Jack Dorsey emphasized that this change was also part of a mindset one, where the old, siloed model had the company ‘losing focus’ on being engineering first.

A secondary component of this efficiency drive is investments in internal AI agents, including an internal one nicknamed ‘Goose’. Goose is a model-agnostic workflow and can be plugged into different flagship models, based on criteria like cost or performance in specific tasks. According to management, 65% of Cash App customer support requests are handled by AI, with 90% of code now being reviewed or written by AI. Combined, this has led to a 25% reduction in manual work hours for the 75% of the employee base that interacts with the tools regularly.

While they have not broken out specifically how much they are spending on developing these AI tools, or their customer-facing ones, Block has guided toward $130 million in investment in 2026 for new growth initiatives which includes AI investment.

For the 9 months ending September 2025, adjusted for origination of Cash App Borrow (reported under investing cash flows), Block generated $998 million in free cash flow. While management does not offer specific guidance for free cash, their ‘non-gaap cash flow’ metric (OCF-less capex and timing adjustments) is guided toward 20% of gross profit for 2026, or $3 billion annually to 2028.

Repurchases year to date ending September 2025 have been 4.0% of outstanding shares at a volume of $1.54 billion, with around $6 billion remaining on authorization, or around 16.2% of shares. The pace of repurchases is likely to increase in our view, with the CEO stating that the stock currently trades at a ‘deep discount’ and that they will ‘act more aggressively’.

The balance sheet is strong, with $8.8 billion against $8.1 billion in total debt with a strong 16.2x interest coverage for the first 9 months of 2025. Credit rating remains mixed, with Fitch rating BBB-, with S&P and Moody’s being just below investment grade. Overall, we believe that the level of risk on the balance sheet will increase over time as the Cash App Borrow product expands. Explicitly, the CFO stated that they are willing to increase risk on a dollar basis if it means that Cash App Borrow expands quickly. Thus far, losses have kept under 3%, which is a healthy for a consumer lender in our view. As previously discussed, the risk may be limited overall as the average loan duration is typically under 30 days, with a ROIC of around 30%.

Conclusion

While the short-term operating environment faces headwinds from macroeconomic uncertainty, we believe that the company’s rigorous pivot to efficiency will buoy operating results until consumer sentiment recovers. On the merchant side, we believe the insular ecosystem of the Square offerings have high levels of stickiness with mid-sized enterprises now drive 45% of GPV. On the consumer side, despite the maturation of CashApp’s P2P payment offering, converting users to banking actives generates 3x the gross profit of typical users with ROIC of 30% for loan products. Globally, particularly in international markets where Square GPV is growing at 26%, the operating environment remains highly attractive, and we expect management to continue aggressively pursuing these high-return opportunities. We believe the current valuation reset offers an attractive entry point, supported by an aggressive share repurchase program while waiting for long-term strategies to pay off

Peer Comparisons

$Block, Inc.(XYZ)$ $PayPal(PYPL)$ $Adyen N.V.(ADYEY)$ $Affirm Holdings, Inc.(AFRM)$

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