Block, Inc. (XYZ) Earnings

Management highlights

### Overall Company Performance - Block delivered a strong Q2 2026 with 25% year-over-year gross profit growth, an all-time high 27% adjusted operating income margin, and 65% year-over-year growth in adjusted diluted EPS, achieving record profitability for the quarter. - Six months after reorganizing the company to center intelligence/AI in all workflows, product shipping velocity has increased dramatically, with 130 Square features shipped in H1 2026, a 3x increase over H1 2025. Code changes per engineer are up 150% since the start of 2026 driven by internal AI tools. ### Strategic & Product Milestones - **Neighborhoods (Block's seller-buyer network connecting Square and Cash App ecosystems):** Annualized seller GPV crossed $1 billion in June 2026, up 220% year-over-year, with new seller onboarding 8x higher in July 2026 than in March 2026, confirming strong product-market fit. The program drives an average of 10% of a seller's GPV from follower spend within three quarters of onboarding. - **Cash App Tags:** New modular contactless payment hardware launched in early summer 2026. Initial limited releases sold out quickly (second drop sold out in 30 minutes) with zero marketing, driven by viral demand, and over 3 million consumers have requested notifications for future drops. Tags allow consumers to turn everyday items into Cash App payment devices. - **AI Initiatives:** Block publicly launched Buzz, its agentic AI collaboration platform, in July 2026, which is already used internally to accelerate development. The company's core AI infrastructure tool Goose is model-agnostic, allowing Block to avoid vendor lock-in and leverage the most cost-effective high-quality models for each workload. - **Square Financial Services (SFS):** SFS has expanded beyond lending to add new capabilities: it is now accepting deposits from Square sellers (offering 3.5% APY on balances over $10,000) and has processed its first in-house Square acquiring transactions, bringing more infrastructure in-house to improve long-term cost efficiency and resilience. - **Cash App Product Updates:** Cash App launched new products including Cash App Tags, Cash App Mobile, and brought Afterpay pre-purchase on Cash App Card to general availability. Consumer lending origination growth is normalizing after meteoric growth in 2025, and loss rates remain healthy with improving repayment behavior as cohorts season.

Guidance

- Management raised full-year 2026 guidance across all key metrics following Q2 outperformance: full-year 2026 gross profit is now expected to be $12.51 billion, representing 21% year-over-year growth (up from prior guidance). - Full-year 2026 adjusted operating income is now guided to $3.47 billion, representing a 28% adjusted operating margin, with adjusted diluted EPS growth guided to 70% year-over-year, up from prior guidance. - For Q3 2026, management expects 18% year-over-year gross profit growth, a 28% adjusted operating income margin, and 89% year-over-year growth in adjusted diluted EPS. Q3 interest expense is expected to be $50 to $55 million, with full-year 2026 interest expense guided to $200 to $210 million. - Square gross profit and GPV are expected to grow roughly in line with each other in H2 2026, with Square gross profit growth expected to accelerate in the back half of the year. Cash App monthly transacting active growth is expected to remain in the low single-digit percentage range for full-year 2026, with consumer lending origination growth expected to normalize in H2 2026. - Management plans to increase investment in high-return opportunities including Square go-to-market (self-onboard, field sales, ISO channels), Neighborhoods scaling, and AI infrastructure/tooling if additional profit upside materializes in H2 2026.

Segment performance

1. Square: Gross profit grew 13% year-over-year, matching the 13% year-over-year growth in Gross Payment Volume (GPV). U.S. GPV growth accelerated to its strongest rate since Q2 2023, with global food and beverage GPV up 20% year-over-year and mid-market segment growth exceeding 20% year-over-year. The segment now has over 200 active ISO partners, driving 150% quarter-over-quarter growth in new sellers joining from the ISO channel. Square contributes approximately 45% of total company gross profit based on full year guidance figures. 2. Cash App: Gross profit grew 31% year-over-year in Q2 2026. Monthly transacting actives grew 3% year-over-year in June 2026. Cash App Commerce Enablement volume grew 17% year-over-year, and Consumer Lending Origination volume grew 59% year-over-year. Cash Card, the company's 10-year-old debit program, is the fourth largest in the U.S. and currently generates over 20% year-over-year GPV growth. Cash App contributes approximately 55% of total company gross profit based on full year guidance figures.

Risks & headwinds

- Global memory and hardware cost inflation is an unprecedented industry-wide issue, described by Apple as a 100-year flood. While Block has mitigated near-term impacts via deep supply chain relationships and pre-planning initiated 12+ months ago, the company expects hardware costs to increase over time and cannot guarantee it will avoid future supply constraints. - AI token and compute costs are rising industry-wide; while Block has built a flexible model-agnostic foundation to improve efficiency, it is an evolving paradigm and continued cost pressures could impact margins if efficiency gains do not materialize as expected. - Cash App faces tougher year-over-year comparisons in H2 2026 after very rapid growth of Cash Borrow in the back half of 2025, and while management expects growth to normalize smoothly, there is uncertainty about consumer repayment behavior during economic shifts. - Actual results may differ materially from forward-looking guidance and statements due to general market and economic risks, as noted in SEC filings.

Analyst Q&A

• Q: Six months into Block's AI-centered reorganization, what progress has been made on incremental AI investment and talent, and is the company on track with its streaming intelligence strategy? /

  A: Jack Dorsey confirmed the company is fully on track, with the clearest proof point being dramatically increased product shipping velocity. A small internal team built and launched Buzz, Block's agentic AI collaboration platform, very quickly, leveraging two years of compounded work on internal AI tools. Block was an early pioneer in AI coding tools, and Buzz creates cohesive organizational context and memory that accelerates work across the company. Management is now focused on bringing the same AI efficiency benefits to external sellers and Cash App customers, with a focus on building simple, accessible AI tools that do not add complexity for business owners.

• Q: How does Block plan to monetize open source AI initiatives like Buzz, and does open sourcing limit the benefits Block can capture from these products? /

  A: Jack Dorsey stated open sourcing does not limit Block's benefits; instead, it provides access to community contributions and external feedback that improves the product. The core original purpose of building Buzz was to reduce Block's dependency on external vendors that have not kept up with agentic AI demands, and it also aligns with what sellers will need for their own operations. Multiple monetization models are being considered, including a hosted managed service for teams that do not want to run their own infrastructure, but Block is not rushing to lock in a model before gathering more user feedback. There is already strong interest from both small businesses and large enterprises, so management sees a large long-term monetization opportunity.

• Q: What is Block's strategy for hardware supply and costs, and how does it differ from competitors amid the current memory price crunch? /

  A: Thomas Templeton explained that Block builds deep, multi-tier supply chain relationships, going all the way to raw material suppliers for core components rather than only working with tier-one assemblers, which is different from most peer companies. Block identified the coming memory constraint in mid-2025, so engineering and operations teams have spent over a year mitigating impacts. As a result, Block has not faced publicized supply constraints that other companies have reported. While the current market environment is unprecedented and Block expects costs to rise over time, management has a clear handle on supply and cost trajectories and can manage impacts effectively.

• Q: What is the growth playbook for Cash App after lapping the very rapid growth of Cash Borrow in 2025? /

  A: Owen Jennings explained that Cash App has a broad four-part ecosystem (network products, banking/financial services, commerce solutions, Bitcoin) with massive runway across all segments, not just lending. Core existing products like Cash Card still generate over 20% year-over-year GPV growth, and new products like Neighborhoods, Afterpay on Cash Card, Cash App Tags, and teen/family managed accounts are driving new engagement and market expansion. Bitcoin deliberate pricing cuts to gain market share have created near-term headwinds but are already driving share gains vs competitors. New under-monetized opportunities like Cash App Score and MoneyBot will add additional growth over time, so management expects strong durable profit growth to continue despite normalization of Borrow growth.

• Q: What updates are there on Square Financial Services (SFS) and its new roles in deposit-taking and acquiring? /

  A: Amrita Ahuja explained that SFS provides three core strategic benefits: greater business optionality, ability to serve more customers at better economics, and increased operational resilience. The two new key milestones are deposit-taking (already offering 3.5% APY for Square sellers with balances over $10,000) which builds a low-cost stable deposit base to fund future lending in the long term, reducing cost of capital, and in-house acquiring capabilities (first transactions processed in June 2026). Migrating acquiring in-house is a multi-year project that will gradually reduce third-party costs and add redundancy. SFS has already improved the economics of Cash Borrow, and has a long multi-product roadmap beyond lending and acquiring.