Dolphin Research's transcript of Block FY26 Q2 earnings call

I. Headline takeaways

1) Full-year guidance raised across the board, with Q2 upside flowing through to H2. The company lifted FY26 guidance for GP, Adj. OP, and Adj. diluted EPS.

FY26 GP: $12.51bn. Up 21% YoY.

FY26 Adj. OP: $3.47bn. Implied OPM of 28%.

FY26 Adj. diluted EPS: Up 70% YoY.

2) Q3 guide and Q4 exit growth. For Q3, GP +18% YoY, Adj. OPM 28%, and Adj. diluted EPS +89% YoY.Q4 exit GP growth expected to slow to mid-teens, consistent with messaging since the Nov last year Investor Day, mainly due to a tough comp from the sharp ramp in Cash App Borrow in H2 last year.

3) Q2 key metrics show broad-based strength this quarter.

Total: GP +25% YoY, Adj. OPM 27% (record high), Adj. diluted EPS +65% YoY.Square: GP and GPV both +13% YoY (US GPV +10%), the strongest US GPV growth since Q2 2023; large and mid-market grew >20%, Intl +25% at FXN.Cash App: GP +31% YoY; June MTUs (transacting) +3% YoY; inflows per active +9% YoY; commerce enablement TPV +17%; consumer lending originations +59%.

One-offs: About 200bps benefit from tariff refunds this quarter. This broadly offset the comp headwind from network remediation in Q2 2025.

4) Interest expense and tax rate. Q3 interest expense: $50–55mn, FY: $200–210mn.Non-GAAP effective tax rate in Q3 and FY: mid-20% range.

5) H2 capital allocation stance: reinvest upside where ROI is highest rather than drop all through to the P&L. Named high-ROI areas include Square's self-serve/field sales/ISO acquisition channels, Cash App Tags and Afterpay Pre-Purchase, Neighborhoods bridging the two ecosystems, and AI infra including Buzz.

II. Call details

2.1 Management remarks

1) Square

GP and GPV grew in tandem, with US GPV the strongest since Q2 2023. Growth reflects the compounding of faster product shipping and expanded distribution.Active ISO partners now exceed 200, driving >150% QoQ growth in new sellers onboarded via ISO.Both Commerce Enablement and Financial Solutions delivered strong GP growth; in H2, Square GP is still expected to move broadly in line with GPV.

2) Cash App

MAU growth remains a constraint: June transacting MTUs +3% YoY, and FY26 actives are expected to grow low single-digit %.Focus remains on deepening engagement per user: commerce enablement TPV +17%, consumer lending originations +59%.Cash App Tags and Cash App Mobile launched in Q2, and Afterpay Pre-Purchase on Cash App Card is now fully available.

3) Investment pace and AI

We expanded GTM spend on both Square and Cash App in Q2 while delivering record profitability.We continue to speed up product velocity via AI investments; Buzz, an agentic collaboration platform, was publicly launched in Jul and is also used internally.Roughly six months post-reorg, we are delivering faster under an 'intelligence-first' operating model while still expanding margins.

4) H2 investment priorities

Square has validated high ROI from the new GTM motion, and we see additional runway across self-serve, field sales, and ISO.On Cash App, Tags and Afterpay Pre-Purchase are called out as sustainable growth products.Neighborhoods has reached product-market fit, and we will step up investment to scale this merchant-consumer network faster.We will keep investing in AI infra (incl. Buzz) to further increase development velocity.

2.2 Q&A

Q: Six months post-reorg, how is it going? To scale this model across Square and Cash App, how much incremental AI investment and talent is needed? Is 'streaming intelligence' on track and what are the proof points? (JP Morgan)

A: We are on plan, and shipment velocity is the strongest proof point. Buzz was built by a very small team; it is not only an external product but is also used internally for development and collaboration, and the runway for products like this is very long.Shipping such a feature-rich Buzz so quickly comes from two years of compounding: we released the first coding harness months before Claude Code, and kept building internal intelligent capabilities and discipline. This enabled org-level feats competitors could not achieve, including more unified context and memory across the company — Buzz embodies this and can be offered to others over time.The tooling-to-org speed pathway is proven, and next we will deliver the same capabilities to Cash App customers and sellers. Sellers are particularly relevant in the next phase as they also seek AI help, and Block is among the few that can make it simple, remove learning curves, and truly save time.

Q: How will Block monetize Buzz and open-source projects like goose? Does openness cap the upside for Block? (Shareholder on X)

A: It does not cap upside; it brings more information and more code contributors, and we already see ideas in the community that can be integrated into Buzz GA.Buzz was built to boost our own efficiency and reduce single-vendor dependency — many vendors have not adapted to the agentic era, nor do they fit our view of how customers, especially sellers, run, manage, and build.There are many monetization options, and we do intend to monetize, but we will not lock in prematurely without data. Our position lets us test multiple models and choose one that aligns our incentives with customers; we have spoken with the smallest micro SMBs and the largest enterprises, and see real opportunities.

We plan to offer full git hosting and repos on the roadmap. For teams that do not want to run infra, a hosted option is already live today.There is more to do on token efficiency; we are model-agnostic already, but the room is still large. As noted in prior Buzz posts, 'agents that can transact' are a natural direction, with variants for sellers and for large enterprises, and we are building first for ourselves to be more efficient and better.

Q: You have topped quarterly guides for 4–5 quarters, and this time the FY raise surpasses the Q2 beat. Does the H2 outlook retain prior conservatism? How do you see segment-level GP growth over the next two quarters? (Wells Fargo)

A: First, the numbers: Q2 GP +25% YoY and Adj. diluted EPS +65% YoY, with breadth being the standout. Cash App actives grew YoY while inflows per active rose 9% YoY, spanning commerce, banking, and lending.On Square, global GPV, US GPV, and GP all accelerated, with the US growth the strongest since H1 2023, across US restaurants and overall US GPV; other target verticals were strong as well, large and mid-market >20%, and Intl +25% at FXN.Q3 tracking remains strong: Jul Square GPV growth mirrors Q2, and Cash App inflows per active, monetization, and loss rates are healthy. This supports Q3 GP growth of 18% and continued margin expansion, then mid-teens by Q4 exit, consistent with our Nov Investor Day messaging, as Cash App Borrow normalizes against tougher H2 comps.

By segment, Square GP growth should accelerate in H2, driven by GPV compounding from faster product cadence and channel ramp, and by broader reach of pricing and packaging launched late last year.Cash App actives should grow low single-digit % in H2, with ample room to deepen engagement across commerce and lending; consumer lending originations will normalize, but we have built a broader lending platform to drive growth beyond Borrow.Lastly, efficiency and profitable growth remain priorities. Nearly six months into the new model of an AI-centered company, we see rising confidence in operating discipline, which expands leverage and frees capital to reinvest in high-return areas — GTM, Neighborhoods, and AI.

Q: How are memory and other hardware costs and the pricing environment? What is the impact range on the biz? How do Block's sourcing capabilities and hardware strategy differ from peers? (Goldman Sachs)

A: This is the key topic now, especially memory. We often discuss hardware differentiation in the context of new products — from the original Square reader and Square Register defining POS, to Tags enabling magical payments, with more to come in the pipeline.But hardware matters beyond products. Our supply chain and ops teams are a major, under-discussed strength: we go deeper than most, building ties not just with suppliers but with their suppliers and, for critical tech, even the suppliers' suppliers.This enables first-class products and differentiated supply management. Recall the COVID period when everything was in shortage — we were the only one among peers without back orders.

Today, hardware costs, especially memory, are top of mind for all. Because we dug deep and built strong relationships, we identified constraints by mid last year and spent over a year mitigating with eng and ops, which is why you have not heard of supply or cost pressure from Block.That said, what is happening across industries is unprecedented — a 'once-in-100-years flood,' as a peer in Cupertino framed it. We cannot claim immunity, and costs are likely to rise over time like for everyone else, but we have good visibility into cost and supply dynamics and the ability to manage.

Q: What drove GPV acceleration to 13% globally and 10% in the US? How is NVA trending vs. +17% last year? Progress on sales build-out, ISO and partners? (Wolfe Research)

A: GPV momentum fundamentally comes from two compounding forces: advancing the product strategy with faster shipping, and expanding GTM channels. These efforts are resonating with both existing and new sellers.On product, we launched a slate for restaurants, including QSR drive-thru and dozens of features. On GTM, self-serve NVA growth was the fastest since Q2 2021; layering in field sales, ISO, and partners drove the acceleration.The step-up is broad-based but especially visible in the US, with the strongest US GPV since Q2 2023; Intl grew 25% at FXN despite FX headwinds.

By vertical, global restaurant GPV rose 20% YoY, with US restaurants at the fastest pace since Q1 2023. Mid-market remains the fastest climber, also >20% growth.The Q2 strength carried into Jul.

Q: Excluding tariff refunds, the GP vs. GPV growth gap is narrowing. Should Square GP and GPV still grow broadly in tandem in H2? (Wolfe Research)

A: GP growth is accelerating and broadly aligned with GPV. Beyond the GPV engine, we are benefiting from rising software adoption and momentum in financial solutions — Square Loans still has substantial runway; Square Card/credit are ramping in-ecosystem, and the broader software-plus-banking bundle is resonating with both existing and new sellers.This quarter, about 200bps came from tariff refunds, roughly offsetting the comp impact of network remediation in Q2 2025. These two one-offs net to about 200bps this quarter.We still expect Square GP and GPV to grow broadly in tandem in H2.

Q: Square's path is better product plus broader distribution. With Borrow facing tough comps, how does Cash App sustain outperformance in GP growth, and what is the playbook? (Evercore)

A: Despite a decade of evolution, the core growth method is similar because the TAM is massive. The US has over 100mn 'modern earners,' likely the fastest-growing cohort over the next 5–10 years.Within our base, engagement runway remains large: Cash App Card attach is high but many still only use P2P. Neighborhoods, Teens & Families, and Tags let us move upmarket and effectively expand TAM.We stay focused on the ecosystem, which differentiates us from other consumer fintechs that monetize via one or two sources. Cash App spans four pillars: network products, banking and financial services, commerce solutions, and Bitcoin — each with a long runway.

On the network, we continue to invest in network health and core P2P; Neighborhoods should have a major impact, alongside U-13 custodial accounts and broader Teens & Families. On banking, Cash App Green has large headroom, and new 'essentials' such as the Cash App mobile plan are coming; Borrow and retro are being tuned.On commerce, we see progress around the card: Afterpay Pre-Purchase on Cash App Card is now fully available; Tags has had several viral moments and is a large platform; we keep pushing Cash App Pay and Afterpay distribution and recently signed some large merchants.On Bitcoin, pricing changes are a headwind this year by design as we aim to be the simplest and cheapest BTC exchange; the strategy is working in share terms.

On top of the core, we are layering newer bets such as monetizing Cash App Score, MoneyBot, and other unannounced products. These flow through the 'inflows' framework in different ways — some boost actives, some inflows per active, and some monetization.Near-term active growth should be driven by Neighborhoods and Teens & Families; engagement and inflows by focus on modern earners and consumer tools. Cash App Card just turned 10, and its GPV still grows >20% YoY, making it the No. 4 debit card program in the US.Overall, we have the most complete product set ever; from H2 into 2027, the task is to stitch the ecosystem together and sustain strong, durable growth even as Borrow’s explosive growth fades in comps — a playbook we have executed well for over a decade.

Q: What is the loss rate this quarter and the outlook? (Evercore)

A: If you mean Cash App Borrow, loss rates remain healthy. We track cohort loss rates, which generally improve as cohorts season, reflecting our underwriting and proprietary first-party data.More broadly, given originations, normalization in growth, and cohort seasoning, we expect YoY growth in transaction loan and consumer receivable losses to slow over the balance of 2026.

Q: SFS will begin taking deposits and act as the acquiring sponsor for both Square and Cash App. How will these two paths play out? (UBS)

A: SFS provides strong banking capabilities and is still early. Strategically, it brings three benefits: more optionality in GTM via partner vs. SFS, improving resilience and redundancy; the ability to serve more customers, expand products, and often with better unit economics — Borrow’s nationwide rollout and variable margin improvement over the past year are proof points and reusable for future products; and direct regulator connectivity, building trust and enabling ongoing feedback during product expansion.

Next, SFS will expand beyond lending with two milestones. First, deposits: sellers maintaining at least $10,000 in Square savings now earn 3.5% APY, 8x the national avg., which should draw more of their business to Block, deepen relationships, lift retention, and grow deposits.As balances scale, we can build a relatively low-cost, stable deposit base to fund future lending at lower cost of funds. Near term, originations will still be externalized via warehouse lines and other sources, but over time SFS deposits should fund a larger share, a far more efficient model from a capital and returns standpoint.

Second, acquiring: in Jun, SFS processed its first Square acquiring transactions, a new milestone. Over time we can migrate more Square and Cash App acquiring volume in-house; this is a multi-year effort to internalize more processing infra, with the primary benefits again being resilience and redundancy.SFS’s opportunity is far larger than chapter one in lending; deposits and acquiring are the next steps, with a longer roadmap beyond.

Q: Latest on Neighborhoods and broader rollout? (Shareholder on X)

A: We are highly confident Neighborhoods has product-market fit and is scaling rapidly. Seller annualized GPV on the platform crossed $1bn in Jun, up 220% YoY; new sellers onboarded in Jul were 8x Mar.At scale, metrics remain robust: on avg., followers’ spend reaches about 10% of a seller’s GPV within three quarters, a meaningful share. Conversion is strong across steps, from buyer sign-ups per location to sign-up conversion relative to Neighborhoods exposure, and offers claimed per location.

In the coming weeks to months, the focus is to massively accelerate distribution and GTM on the seller side. Auto enrollment, noted last quarter, is working well, and there is a tight correlation between the number of sellers on Neighborhoods and the number of buyers engaging via Cash App.On product, we are testing density-boosting tactics by pairing auto enrollment with targeted outreach and in-person time from account teams, which is very effective for higher-end, multi-location sellers. We are also piloting staff incentives so every employee at a Neighborhoods-enabled seller becomes an advocate and Cash App user.We will complete work to support all hardware products and add a top-level tab in Cash App with a map view of all followable, pre-orderable, and interactive sellers.

This feels like the early days of P2P: a proprietary acquisition funnel, data inflecting, line of sight to massive scale, and significant headroom to deepen engagement and monetization.

Q: How is Cash App Tags performing? Any lift in engagement or ticket size, and who is adopting? (Susquehanna)

A: We view Tags as a new generation of viral hardware. The first time we took a Wand prototype to a seller, reactions from cashiers and the line made it clear it would work — reminiscent of the early days of swiping on phones, finger signatures, and email receipts with Square.

Why Tags and how we built them: When Cash App Card launched ten years ago, it emphasized customization — colors, materials like metal and tortoiseshell; users could personalize, write, stamp, and make it unique, which resonated with younger users — today 1 in 5 teens has a Cash App Card.But cards live in wallets 99% of the time. So we pushed the best of Cash App Card up a layer and created Tags — an NFC module with antenna and components, fully sealed and waterproof, washer/dryer-proof for hundreds of cycles, and battery-free; critically, the module embeds into almost anything, instantly turning it into a Cash App payment device.

We launched three SKUs this summer — Wand, Mini card, and heart — and demand exceeded expectations, selling out far faster than forecast. The second Wand drop sold out in just over 30 minutes, with zero marketing and purely viral; over 3mn people have signed up for restock alerts.We are ramping these three and will broaden availability in the coming weeks; many more Tags are slated for late this year into early next, including new colors and new form factors. We will add more keychain-like items and other materials and shapes under exploration.Beyond our own line, we are doing collabs to reach audiences that already have brand affinity, which helps broaden the user base efficiently.

More broadly, the pace for Tags reflects how Block’s development model changed over the past 6–12 months. AI tooling lets us ship faster with higher quality — two goals once at odds — and now nearly every prod code change or review involves AI.Per-capita prod code changes are up 150% since the start of the year; Square shipped 130 features in H1 FY26, over 3x H1 FY25. This stems from three years of AI groundwork and investment — goose, contributions to MCP, Buzz, and other internal builds.Other examples: Square credit card annualized spend just topped $1bn; Managerbot and MoneyBot are GA; Afterpay on Cash App Card is GA; and stablecoins in Cash App are GA. The 'high quality, high velocity' narrative we have reiterated over the past 2–4 quarters materialized in Q2.

Q: Under a model-agnostic approach, as AI spend deepens and token costs matter, what is Block’s AI cost strategy? (Barclays)

A: We feel well-positioned, in part due to goose’s model-agnostic architecture. Budgets are rising, but we demand ROI — product velocity is the evidence, with speed and quality both advancing, and internal ops and workflows already intelligent.Cost strategy starts with intelligent workload routing, efficiency in compute use, and fit-for-purpose models, including open-source where appropriate. As the tech evolves, so does the strategy, now on weekly or monthly cycles.We do not believe the answer is to constrain developer speed or productivity; rather, we are deliberate in deployment. It is an evolving paradigm — we have built a strong base, identified multiple efficiency levers, and there is more work ahead for us and peers.

Two differentiators are worth highlighting. First, goose’s model-agnostic design, anticipated years ago, avoids lock-in to a single vendor’s capability or pricing; anyone on goose benefits similarly, and leading open-source models are sometimes better than six months ago, letting us switch on quality or cost.For most knowledge work, the cutting-edge model is not required, so we route based on actual task needs. Second, eng has an internal eval system scoring each model across quality-to-cost using real production data, continuously assessing new models and pricing that is moving fast.As top models keep getting cheaper, we can tailor efficient stacks per workflow, handing many tasks to 'older yet stronger' models.

Q: Near- to mid-term monetization paths for Managerbot and MoneyBot? (Barclays)

A: Managerbot, MoneyBot, and Buzz all have monetization opportunities. For Buzz, we have talked to companies from micro sellers on Square to the largest global enterprises, and willingness to pay is clear.Managerbot is particularly compelling. We are testing new versions that handle some of the most complex and time-consuming seller tasks; willingness to pay is especially strong for scheduling and inventory.Packaging can vary: bundled into a SaaS tier, sold as a standalone, or usage-based, which suits enterprises accustomed to that model. For now, we are focused on quality, distribution, and making Managerbot an indispensable partner for sellers.

Do not just consider first-order monetization. When sellers win, Block wins — good for sellers, Block, and the economy. If we can improve decision quality by 10% or raise survival odds by 10%, it is a win-win that ultimately shows up in same-store growth, retention, and overall GPV.

Q: Block’s mission is to expand economic access. How do you balance deepening this mission with new AI investments like Buzz? (Shareholder on X)

A: These technologies — what we now call AI — are precisely how we serve more of the economy and expand participation. From inception, we built deep ML and DL capabilities to understand and model risk and fraud, later applying the same tools to lending.These technologies are part of Block’s DNA; we benefit internally and pass them to customers. Buzz elevates this to a new level.In recent conversations, sellers consistently communicate with staff, feel frustrated with tools, and want to build. They already use AI and want something embedded, out-of-the-box, and immediately useful to grow sales and manage teams and ops.Buzz fits that need and does much more. Building it is, in large part, building for the broader economy, directly aligned with our mission, and we expect to be at the forefront.

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