Block

Phase A — Understand the business

Lens 1 · Company Overview

Block builds connected financial ecosystems for two customer bases: Square (≈4.5M sellers; small-to-mid businesses) and Cash App (59M monthly transacting actives, consumers), plus smaller bitcoin (Bitkey self-custody wallet, Proto mining systems, Spiral open-source) and TIDAL (music) ecosystems . As of Dec 2025 it ran $250B of Square GPV across 5.9B transactions and pulled $316B of inflows into Cash App .

In 2025 management re-cut its revenue disclosure into three categories — Commerce Enablement (payments/software/hardware/Cash App Card/BNPL/TIDAL), Financial Solutions (Cash App Borrow, Square Loans, interest income, Instant Deposit), and the Bitcoin Ecosystem — while keeping two reportable segments: Square and Cash App . The economics: Block monetizes per-transaction (Square ~merchant-of-record processing fees; Cash App Card interchange), per-loan (origination/servicing fees + interest), and a thin spread on bitcoin sales. **No long-term contracts; low switching costs** are explicitly disclosed as a risk — sellers and consumers can leave anytime . It owns a Utah-chartered industrial loan bank (Square Financial Services), a broker-dealer (Cash App Investing), and money-transmitter/BitLicense/EMI licenses across the US, UK, EU and Australia.

The 2026 identity shift: Dorsey reframed Block as a "smaller, faster, intelligence-native company," cutting the workforce by more than 40% (≈10,205 FTEs → ~6,000) and rebuilding around AI-driven operating leverage .

Lens 2 · Supply Chain / Value Chain

Block is asset-light (FY2025 capex only $155.0M ``), so its "supply chain" is a network of money-movement counterparties plus a hardware line:

• Card rails / processors: Visa, Mastercard, American Express, Discover (plus JCB Japan, Interac Canada, eftpos Australia). For most transactions Block does not touch the networks directly — it relies on acquiring/issuing processors and bank partners (a named single-/limited-source dependency and explicit risk) ``.
• Bank partners + own bank: Square Financial Services (Utah ILC, FDIC-insured) originates Square Loans and, from Q2 2025, Cash App Borrow; third-party FDIC banks provide Cash App/Square deposit and card products ``.
• Lending capital: forward-flow institutional investors buy a majority of Square Loans ($1.3B sold in Q1 2026 alone, $72.1M gain on sale ); **warehouse facilities** ($1.7B capacity, $1.4B drawn at YE2025) fund BNPL receivables via consolidated Warehouse SPEs .
• Hardware: Square Register/Terminal/Stand/Reader/Handheld are designed in-house and built by third-party contract manufacturers outside the US — exposed to single-source component shortages and import tariffs that hit hardware gross margin ``.
• App distribution chokepoint: Apple App Store + Google Play gate Cash App downloads ``.
• Cloud: non-cancelable cloud-infrastructure purchase commitments of $2.35B through "thereafter" ($419.5M due 2026) ``.

Chokepoints: processor/bank-partner concentration, forward-flow buyers for Square Loans, and warehouse-facility availability are the three places a squeeze would bite first.

Lens 3 · Competitive Advantages (moats)

• Two-sided data + ecosystem lock-in (real, narrow): Square underwrites loans off the seller's own payment history (loans sized <20% of expected annual GPV, repaid in ~10 months on average; >4.0M loans / $32.8B advanced since 2014) . Cash App Borrow uses >a decade of in-app repayment data and the new **Cash App Score** model; the average Borrow loan repaid in **<4 weeks** . This proprietary, real-time credit data is the most defensible asset Block owns.
• Cash App network effects (decaying): peer-to-peer is a genuine viral acquisition loop, but active-user growth has stalled at 59M (Dec 2025 = Mar 2026) `` — the network is mature, so the moat is now retention/engagement, not new-user flywheel.
• Brand + self-serve distribution: Cash App was the #1 finance app on Google Play / #3 on iOS by US downloads in 2025 ``; Square's self-serve onboarding lowers CAC.
• Bargaining power: weak vs. card networks (price-taker on interchange/assessments, disclosed risk) and weak vs. sellers/consumers (no contracts, low switching costs). Block's power is over capital providers (it can sell or hold loans) more than over its own customers.
• Emerging moat — the bank charter + AI cost structure: owning Square Financial Services lets Block keep lending spread instead of paying a partner; if the 40% headcount cut sticks, a structurally lower cost-to-serve is itself a moat in a thin-margin business.

Lens 4 · Segments

FY2025 by reportable segment ``:

By revenue category FY2025 : Commerce Enablement **$11,514M (+10%)**, Financial Solutions **$4,177M (+28%)**, Bitcoin **$8,503M (−18%)**. The decisive insight: **bitcoin is 35% of revenue but only ~4% of gross profit** — it inflates the top line and should be stripped out. Ex-bitcoin, total revenue grew **+14%** in FY25 .

The trend is accelerating into 2026. Q1 FY2026 : total revenue $6,056.8M (+5%; **ex-bitcoin +24%**), gross profit $2,909.2M (**+27%**) — Cash App GP $1,908.1M (**+38%**), Square GP $981.5M (+9%). The cause: **Cash App Borrow.** Consumer-lending origination hit **$17.6B in Q1'26, +82% YoY** ; Financial Solutions revenue +51% YoY in the quarter . Square is the steady-but-slower leg (GPV +13% in Q1'26 vs +10% FY25, led by Food & Beverage). Geography: predominantly US, with Australia (Afterpay) the main non-USD exposure .

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Phase B — Measure performance

Lens 5 · Earnings Result (latest print — Q1 FY2026)

Headline GAAP looked ugly; the underlying business was the best in years. Q1 FY2026 ``:

• Revenue $6,056.8M (+5% YoY); gross profit $2,909.2M (+27%).
• GAAP operating LOSS −$172.0M (vs +$329.3M Q1'25) and net loss to common −$308.7M (vs +$189.9M) — but this is fully explained by three one-timers: the $495.3M Workforce Plan restructuring charge, a $253.8M litigation/regulatory accrual (G&A +74% YoY), and a −$172.8M bitcoin remeasurement loss ``.
• Adjusted EBITDA $1,010.2M (+24%); Adjusted Operating Income $727.7M (+56%) . **Adjusted EPS ~$0.85, vs ~$0.60 consensus (~+42% beat)** .
• Guidance RAISED: FY2026 gross profit ~$12.33B (+19%), Adjusted Operating Income ~$3.34B (27% margin), adjusted EPS ~$3.85 (+~62%) ``.
• Balance-sheet flags: loans held for investment jumped from $365M (YE24) to $3,383M (YE25) as Cash App Borrow moved on-balance-sheet ; transaction/loan/receivable losses rose **+68% to $1,337M** in FY25, loan losses **+154% to $821M** (Cash App Borrow volume +143%) . Operating cash flow FY25 $2,580M (+51%), but investing was −$2,802M because ~$3.5B of cash now funds the retained Borrow book ``.
• Market reaction: stock fell ~4% on the print despite the beat (concern over thin top-line disclosure / no explicit forward revenue) ; Zacks cut to Hold (May 14) after a ~+18% run off the lows . Reads as: good results already partly priced after the Feb workforce-cut pop.

Unusual vs. its own history: FY2025 GAAP net income to common fell to $1.3B from $2.9B — but only because FY2024 carried a $1.9B deferred-tax-valuation-allowance release ``. Underlying operating income nearly doubled (FY25 $1,708M vs FY24 $892M). Don't be fooled by the GAAP net-income "decline."

Lens 6 · Earnings Calls (sentiment trend)

No transcripts on the shelf (transcripts=0), so ``. The tone has inflected from defensive to offensive over the last ~4 calls:

• 2023–2024: apologetic — "disciplined growth," cost-efficiency, headcount caps, defending Cash App deceleration and absorbing the Hindenburg/AML overhang.
• Q4 FY2025 call (Feb 26, 2026): the pivot — Dorsey unveils the 40% cut and the "intelligence-native company" framing; stock +24% intraday ``.
• Q1 FY2026 call (May 2026): confident, AI-saturated. Recurring new phrases: "Goose" (internal agentic coding harness, >40% more production code shipped per engineer since Sept), "MoneyBot" (live across Cash App), "ManagerBot" (1M+ sellers, all Square sellers by June 2026), and "gross profit per employee ~$2M in 2026 (double 2025)" ``. Management raised guidance and leaned hard into Cash App-as-lending-hub.
• What they stopped saying: the chronic "Cash App active growth" excuses — actives are flat and management has quietly shifted the KPI emphasis to inflows, monetization rate, and lending volume rather than user count ``.

Lens 7 · Comps

Peer set: payments + consumer fintech (no clean public peer for the exact mix). Multiples ``; multiples not independently sourced are marked n/a rather than fabricated.

Read: on forward P/E ~16x, Block is the cheapest of the growth-fintech cohort (well below Affirm ~36x and SoFi ~28x) while guiding +19% GP / +62% adj-EPS — but it is far more expensive than PayPal (~7–8x), which is the "no-growth, prove-it" comp. The market is pricing Block as "PayPal that re-found growth," and the gap closes only if the AI-efficiency margin story is durable. Note: trailing P/E (~52x) is distorted by the FY24 tax benefit and FY25/Q1'26 one-timers — use forward.

Lens 8 · Stock-Price Catalysts (5-year, >5% moves)

Mostly , with the 5-yr index from the 10-K performance graph. **$100 invested in Block at YE2020 was worth $29.91 at YE2025 — a ~70% holding-period loss while the S&P 500 ~doubled ($196)** . The pattern of what actually moves the stock:

• Mar 2023 — Hindenburg short report: alleged Cash App inflated metrics + lax AML; triggered SEC + DOJ inquiries; sharp drop .
• 2024 → Jan 2025 — regulatory crystallization: CFPB $175M Cash App order + $80M multistate BSA/AML + NYDFS $40M ``.
• 2025 — the grind: −25% YTD by mid-2025, among the worst S&P performers, on decelerating GP growth + soft consumer spend ``.
• Jul 23, 2025 — added to the S&P 500 (replacing Hess after the Chevron deal) — index-inclusion bid ``.
• Feb 26, 2026 — the 40% AI workforce cut + Q4'25 beat: stock +24% intraday — the single biggest positive catalyst of the cycle ``.
• May 2026 — Q1'26 beat + raised guide: stock dipped ~4% (priced in) but entered Goldman's Conviction List ``.

What the tape reacts to: (1) the efficiency/margin story (the 2026 driver), (2) regulatory headlines (the 2023–25 overhang), and (3) Cash App gross-profit trajectory. It does not reward bitcoin revenue (low-GP) or GAAP net income (noisy).

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Phase C — Judge people & books

Lens 9 · Management

`` for bios/track record (proxy incorporated by reference, not on the shelf).

• CEO — Jack Dorsey (founder, controlling shareholder). Co-founder of Twitter; founded Square (2009). Archetype: visionary founder-operator, bitcoin maximalist, willing to make radical, unpopular bets. Track record is genuinely mixed: built two category-defining products (Square, Cash App) but also presided over the ~70% five-year shareholder loss to YE2025 , a sprawling-then-pruned portfolio (TIDAL acquisition widely seen as a misallocation; impaired in 2024 ), and the AML/compliance failures that drew $295M+ of penalties. The 40% cut is the boldest call of his Block tenure and a credibility wager ``.
• CFO — Amrita Ahuja. The operational author of the AI-efficiency narrative (output per engineer +40%, GP/employee → ~$2M) — articulate, metrics-driven; the steady counterweight to Dorsey ``.
• Skin in the game / control: dual-class structure (Class A 1 vote / Class B 10 votes); ~59.99M Class B shares give insiders, led by Dorsey, voting control disproportionate to economics . Dorsey is explicitly named the FDIC "controlling shareholder" who must cause Block to support Square Financial Services . Alignment is high on ownership, but governance is founder-dominated — minority holders have little leverage.
• Capital allocation: improving. FY2025 — $2.3B of buybacks (board lifted authorization to $9B total, $3.7B done) ; share count actually fell (Class A 559.6M→542.1M; weighted diluted 636.4M→622.8M) net of SBC . SBC is still heavy (~$1.2B/yr) but flat-to-down. Achieved Fitch investment grade (BBB-) in 2025 (Moody's Ba1, S&P BB+) `` — a real capital-structure milestone. The historical knock (TIDAL, over-hiring) is being actively unwound.
• Red flags: founder duality (also runs Block + has prior Twitter/Bluesky/bitcoin attention-split history); the AML governance lapses that produced the settlements; and the risk that a 40% cut into compliance/risk functions during active regulatory scrutiny re-creates control gaps (management flags this itself) ``.

Lens 10 · Forensic Red Flags

Forensic lens. Block's accounting is clean-of-restatement (PCAOB auditor; no error-correction checkbox; no AAER/Litigation Release in EDGAR EFTS ``), but the risk has migrated onto the balance sheet with the lending pivot:

• On-balance-sheet credit risk just exploded. Loans held for investment $365M → $3,383M YoY . Beginning Q2/Q3 2025, Cash App Borrow (and Afterpay Post-Purchase) are **retained, not sold**, forcing **upfront CECL recognition** on origination . This is why loan losses jumped +154% — partly mechanical (held-for-investment accounting), partly real (volume +143%). Watch the loss rate, which management says stayed "stable"; if it ticks up as the book seasons, earnings quality deteriorates fast.
• Cash-flow geography optics. Moving Borrow to HFI shifts ~$3.5B of cash use from operating to investing activities `` — flattering operating cash flow (+51%) relative to the economic reality that the company is funding a fast-growing loan book. Read OCF and investing-CF together.
• Bitcoin remeasurement noise. 8,883 BTC, FV $777.5M, marked through net income each quarter (ASU 2023-08) — a −$55.9M FY25 / −$172.8M Q1'26 GAAP swing factor with zero operating meaning ``. Always strip it.
• SBC flatters non-GAAP. $1,203M FY25 SBC ``; note Block changed its Adjusted-EPS definition in FY2025 to include SBC — a more conservative move (good), but it makes year-over-year adj-EPS comparisons require care.
• Goodwill = 30% of assets ($11.85B, mostly Afterpay) `` — impairment-prone if BNPL economics sour (TIDAL already impaired in 2024).
• Warehouse SPEs: $1.4B drawn, off the claims of Block's general creditors but consolidated — standard, but a covenant trip ("non-repayments above thresholds, or key management resigning") could choke BNPL funding ``.

Regulatory findings (required sub-section):

• SEC EDGAR EFTS: No Litigation Release and no AAER naming Block in 2021-06-23 → 2026-06-23 ``.
• 10-K Item 3 / Note 19 (company's own disclosure, ``): (1) State AG subpoenas (multiple states) on Cash App complaint/dispute handling — settlement terms presented Dec 2024; "It is probable that the Company will incur a loss... and the loss could be material" (amount not estimable at 10-K date). (2) SEC + DOJ inquiries since the Mar-2023 short-seller report, re: AML/compliance/disclosures; follow-on SEC inquiry Jul 2024; ongoing. (3) Securities class action (N.D. Cal., filed Jan 17, 2025; §§10(b)/20(a); class period Feb 2020–Aug 2024; alleges false AML/compliance statements) — motion to dismiss DENIED Jan 6, 2026, so it proceeds to discovery — a live, material negative.
• The accrual landed: Q1 FY2026 G&A carried a $253.8M litigation/regulatory accrual `` — i.e. the "probable material loss" from the AG matter is now being recognized.
• **Non-SEC enforcement ():** **CFPB $175M** Cash App order (up to $120M consumer redress + $55M civil penalty) ; $80M multistate BSA/AML ; **NYDFS $40M BSA/AML** . Aggregate prior penalties ≈ $295M+.
• Net: clean books, but a persistent AML/consumer-protection compliance overhang that has cost cash and management credibility — and the 40% cut now stresses the very functions regulators are watching.

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Phase D — Project & stress-test

Lens 11 · Forward Projection (base / bull / bear)

Built bottom-up from management's own FY2026 guide + Q1'26 actuals. Anchor: FY2026 guidance — GP ~$12.33B (+19%), AOI ~$3.34B (27% margin), adj EPS ~$3.85 (+~62%) ; Q1'26 already printed adj EPS ~$0.85 and AOI $727.7M . ~622M diluted shares, shrinking via the $9B buyback ; non-GAAP tax rate ~25% .

• Base ``: take the FY26 guide at face value; FY27–28 GP +14%/yr (Cash App Borrow + Square steady), AOI margin holds ~27–28% (cut sticks but reinvestment absorbs further leverage), ~2% net share shrink, 25% tax → adj EPS ~$4.55 then ~$5.25. Arithmetic: GP $12.33B×1.14≈$14.1B; AOI ~28%≈$3.9B; after ~$0.16B net interest and 25% tax ≈ $2.8B; ÷ ~615M sh ≈ $4.55.
• Bull ``: efficiency over-delivers — AOI margin reaches ~30%+ as AI cuts cost-to-serve further, Borrow scales without loss-rate creep, buyback accelerates at a low multiple → adj EPS compounds toward ~$6.60 by FY28.
• Bear ``: Cash App Borrow loss rates rise as the held-for-investment book seasons (the +154% loss line keeps climbing faster than volume), a material AML/AG settlement lands, and the headcount cut hurts the product roadmap → GP growth fades to high-single-digits and margin gains stall; adj EPS flatlines ~$3.6–3.8.

Brier forecast (logged conceptually; not committed via forecast.ts per --watchlist rules): XYZ FY2026 adjusted EPS ≥ $3.85, p≈0.62, resolves 2027-02 — credible given Q1 beat + raised guide, but the litigation accrual cadence and GAAP/adj gap make a clean print non-trivial.

Lens 12 · Bull vs Bear

Bull case. Block is a rare thing: a scaled, two-sided fintech that just re-found growth (ex-bitcoin GP +27% in Q1'26) AND structural operating leverage at the same time . The 40% cut + AI tooling (Goose/MoneyBot/ManagerBot) target ~$2M GP/employee (2x), guiding to **27% AOI margin and ~62% adj-EPS growth** . Cash App Borrow is a high-return, data-moated lending engine compounding +82% on origination, now funded by Block's own IG-rated bank. At ~16x forward vs Affirm ~36x / SoFi ~28x, the multiple under-prices the margin trajectory. The contrarian view the market refuses to see: Block is the first big consumer-fintech to prove AI headcount cuts flow straight to gross-profit-per-employee — if durable, it deserves a structurally higher multiple, not its current turnaround discount.

Bear case (permanent-impairment risks). (1) Cash App is a mature, lower-income network with flat actives (59M) — the entire bull case rests on monetizing the same users harder via credit, and consumer credit is cyclical and regulated; a downturn hits this base disproportionately . (2) **The lending pivot loaded $3.4B of credit risk onto the balance sheet just as loss provisions +68%** — if loss rates break "stable," the growth engine becomes the impairment engine . (3) AML/consumer-protection overhang is unresolved — $295M+ paid, a denied-MTD securities class action in discovery, live SEC/DOJ inquiries, and a "probable material" AG loss being accrued — while compliance headcount is being cut 40%. Pre-mortem (18 months out, thesis broke): Cash App Borrow charge-offs rose through 2026–27 as the held-for-investment book seasoned into a softer consumer; the AI cut quietly degraded fraud/compliance and risk controls (Dorsey's own stated risk), inviting a fresh consent order; margin "expansion" turned out to be one-time severance optics, not durable; and the stock de-rated back toward PayPal-style ~8x. Multiples too high? Not vs. fintech peers — but the premium-to-PayPal is only justified if growth+margin both hold; either cracking erases it.

Lens 13 · Devil's Advocate (short-seller)

• Where revenue concentrates & breaks: gross profit growth now leans heavily on one product — Cash App Borrow (Financial Solutions +51%, lending origination +82%) ``. That's consumer subprime-ish credit to a lower-income base, pro-cyclical, and squarely in the CFPB's sightline. A single regulatory action capping Borrow (rate, eligibility, or disclosure) hits the growth story directly.
• Moat weaker than bulls think: Cash App's "network effect" has already stopped producing new users (flat 59M). Square competes against Stripe, Toast, Clover/Fiserv, Shopify, and banks — all with no switching cost protecting Block (its own disclosed risk) ``.
• Most dangerous competitor bulls underestimate: PayPal/Venmo on the consumer side (vastly larger, trading at ~8x with capital to wage a pricing war) and Toast/Stripe on the seller side. Block has weak pricing power on both flanks.
• Worst capital-allocation history: TIDAL (impaired), a sprawling org that needed a 40% cut to fix, ~$1.2B/yr SBC, and a founder-controlled dual-class board that minority holders can't check ``.
• Accounting tells: the held-for-investment shift conveniently moves loan-funding cash out of "operating" CF; bitcoin marks whipsaw GAAP; goodwill is 30% of assets ``.
• What must hold for today's price: (i) AI cost savings are durable, not one-time severance; (ii) Borrow loss rates stay stable through a full credit cycle; (iii) the AML overhang resolves without a growth-capping order. If FY27 GP growth disappoints 20–30% (say +10% instead of +14–19%) and margin gains stall, adj EPS lands ~$3.6 and a re-rate to ~12x → a stock in the high-$40s/low-$50s, ~30% downside.
• Single permanent-impairment scenario (and plausibility): a fresh, severe AML/consumer-protection consent order that forces Block to throttle Cash App lending and rebuild compliance from a 40%-thinner base — plausibility: low-to-moderate, but non-trivial given the active inquiries + the timing of the headcount cut.

Lens 14 · Management Questions (ordered by information value)

1. The 40% workforce cut targets ~$800–900M annualized savings — how much is durable structural cost-out vs. reinvestment, and what's the steady-state AOI margin once severance optics wash out?
2. Cash App Borrow is now held-for-investment with upfront CECL — what are current net charge-off and 30+/90+ delinquency rates by vintage, and how have they moved as the book seasoned?
3. You cut headcount 40% during active SEC/DOJ inquiries and an unresolved state-AG matter — how do you guarantee compliance/risk capacity isn't degraded, and what's reserved for the AG settlement beyond the Q1 accrual?
4. Cash App monthly actives have been flat at 59M for two quarters — is the user-growth era over, and what's the realistic ceiling on gross-profit-per-active from monetization alone?
5. What governs the Borrow growth ceiling — capital, regulation, or credit appetite — and at what point does funding it on-balance-sheet strain the IG rating?
6. With Fitch IG now achieved, what is the target capital structure and buyback pace at the current multiple, and would you lever up to buy back more?
7. How much of the +40% engineering productivity (Goose) is measurable shipped value vs. code volume, and does it translate to revenue, not just cost?
8. Square's GPV reaccelerated to +13% — is that share gain or cycle, and where are you winning vs. Toast/Stripe/Clover in mid-market?
9. What is the strategic role of bitcoin (8,883 BTC + Proto + Bitkey) given it's ~4% of GP — is the investment/hardware sleeve worth the GAAP volatility and management attention?
10. TIDAL was impaired — what is its path to relevance or divestiture, and will you prune further non-core assets?
11. How exposed is hardware/COGS to tariffs, and what's the mitigation?
12. What share of Cash App Borrow / BNPL is funded via warehouse facilities vs. the bank, and how would a forward-flow buyer pullback affect originations?
13. How do you defend interchange economics if regulatory or network changes compress debit interchange?
14. What's the plan if a bank partner or acquiring processor exits — how single-sourced are the critical rails?
15. Given the dual-class structure, what governance commitments protect minority holders as the founder consolidates an "intelligence-native" operating model?

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