The Cost Structure Arrived a Quarter Early, Growth Accelerated Anyway, and Block Finally Showed Its Loss Curve

Results vs. Consensus

Q1 2026 Scorecard

Year-Over-Year Comparisons

Quarter-Over-Quarter Comparisons

Quality of the Print

Revenue and gross profit: Total revenue grew 4.9% while gross profit grew 27.1%, and the wedge is again bitcoin, where revenue fell 22.9%. This quarter the bitcoin decline was partly a deliberate pricing decision: management reduced the fee charged on certain bitcoin transactions in Cash App, which is why bitcoin ecosystem gross profit fell 26% to $68M rather than tracking flat. That is a $24M year-over-year gross profit headwind absorbed inside a 27% consolidated growth rate. Financial solutions revenue grew 51% and commerce enablement revenue grew 14.5%, so the two categories investors actually own grew a combined 23% on the revenue line.

Margins: The 460 basis point year-over-year expansion in adjusted operating margin came from an operating expense base that grew 19.4% on a non-GAAP basis against 27.1% gross profit growth, with the composition split cleanly by function. Non-GAAP product development fell 9% and non-GAAP general and administrative fell 4%, both direct consequences of the February reduction. Non-GAAP sales and marketing grew 22%, with Cash App marketing up 36%, and loss expense grew 195%. The company is spending the entire structural saving on customer acquisition and credit growth and still expanding margin 460 basis points, which is the clearest evidence yet that the cost action was larger than the reinvestment it funds.

GAAP versus adjusted: the gap this quarter is $1.37 per share and it is fully explained. GAAP operating loss of $172M includes $852M of restructuring and other charges, of which $110M is restructuring share-based compensation and $743M sits in contingencies, restructuring and other charges, and the latter also carries accrued legal contingencies that the company did not size separately. Below the line, a $173M bitcoin remeasurement loss cost $0.29 of GAAP EPS pre-tax. Investors should treat the $852M as the cash and equity cost of the February action, which answers the first item on our Q4 list of undisclosed figures, and should note that the legal accrual inside it remains unquantified.

EPS bridge: adjusted operating income of $728M less net interest expense of $53.2M, taxed at 25%, gives $506M against the $513M of adjusted net income reported, a 1.3% variance. The same method on the full-year guide ($3.34B less $205M of interest, taxed at 25%, on roughly 604M diluted shares) produces about $3.89 against the $3.85 guided.

Segment Performance

The mix question we raised in February moved slightly in the bull's favour. Commerce enablement, the payments and software base, accelerated to 15% from four consecutive quarters at 9–11%, so the non-lending business is no longer flat-lining while lending carries everything. Financial solutions still grew 55% and still supplies the majority of incremental gross profit: of the $619.6M of year-over-year gross profit growth, financial solutions contributed $436M, or 70%. The concentration is unchanged; the base is healthier.

Cash App — 38% Growth on 4% More Users

Monthly actives read 59 million for a second consecutive quarter, which management addressed directly rather than letting it pass as stagnation.

"While this looks like 59 million for 2 quarters in a row, that's just an artifact of rounding and how we report. This is actually the fastest pace of actives growth in about 1.5 years." — Owen Jennings, Business Lead

The disclosed year-over-year rate is 4%, up from 3% and 2% in the prior two quarters, which is consistent with that characterisation and still a low single-digit number, exactly as management has guided. Every other Cash App engagement metric improved: inflows per active $1,494 up 10%, commerce enablement volume up 18% with the monetization rate up 9 basis points, and financial solutions gross profit per active at $16, up 60%.

Assessment: Cash App is now producing 38% gross profit growth from a user base growing 4%, which means roughly 34 points of the growth are monetization. That is the flywheel pillar working exactly as specified, and it is also a reminder that the ceiling on this model is set by how much value can be extracted per user rather than by the size of the network. The company's answer to that ceiling is to keep adding products to the same customers, which is why Neighborhoods and Cash App Score matter more to the 2027 story than any single lending metric.

Consumer Lending — The Cohort Disclosure We Have Been Waiting For

Consumer lending originations grew 82% to $17.6B, with Borrow originations up 175% and Afterpay post-purchase originations up more than fifteen-fold. Consolidated transaction, loan and consumer receivable losses grew 195% to $500.1M, which is 17.2% of gross profit, up from 13.7% two quarters ago. Against that, the company disclosed for the first time what its loss experience looks like by cohort age.

"Our newest customers had just over 3%, 3.16% risk loss rate, 7- to 12-month customers, so customers who had been around for a couple of quarters had about 3%, 3.01% loss rate. And our most established customers, those who had been on our platform for 13-plus months had 2.67% loss rate." — Amrita Ahuja, CFO

Management also guided the trajectory of the loss line, saying it expects loss expense growth rates to decline through the rest of 2026 as origination growth normalises and the cohort mix matures.

Assessment: This is the disclosure that most changes what an outsider can conclude, and it cuts both ways honestly. The curve slopes the right way, and a 49 basis point improvement from newest to most seasoned cohort is a real seasoning effect rather than a rounding difference. It also confirms that the newest cohorts run above the 3% figure management cited in November, which is what a book adding first-time borrowers at this rate should look like and which the November framing did not make obvious. The forward implication is mechanical and favourable: if origination growth decelerates as guided, the mix shifts toward the 2.67% cohort and the blended loss rate falls without any underwriting change. We move this pillar from escalating to stable, and we now have a number to grade it against each quarter.

Square — Volume Growth at a Four-Year High

Square GPV grew 13% reported and 11.5% in constant currency, its fastest reported rate since 2022, with the acceleration broad rather than concentrated: food and beverage 21%, mid-market 22%, international 35%, and U.S. growth up for a second consecutive quarter to 8.2%. Gross profit growth turned back up to 9%, or 11% excluding hardware, which the company treats as customer acquisition spend.

The distribution build kept compounding, with a new channel doing real work. Management said the independent sales organisation partnerships now exceed 140 and quantified their productivity in a way that makes the channel comparable to direct hiring.

"The volume of deals signed in March by ISOs would equate to the signing we'd expect from about 70 field sales reps." — Nicholas Molnar, Sales and Marketing Lead

April data was supplied unprompted: Square GPV grew 12% in constant currency, with U.S. up 9% and international up 25% in constant currency.

Assessment: The pillar we moved to at risk in February recovers. Volume growth accelerated, gross profit growth accelerated, the ex-hardware gap narrowed to two points from GPV growth on a constant currency basis, and the leading indicator that drove our patience, new volume added, is now producing measurable GPV. The second-half convergence commitment stands unchanged for a second quarter, which is the first time it has not moved. The one metric still going the wrong way is the ex-hardware commerce enablement monetization rate, down 8 basis points year over year, which is the arithmetic consequence of moving upmarket and is the cost of the strategy rather than a failure of it.

Neighborhoods — The First Quarter With Numbers

Neighborhoods reached sellers representing $320M of annualised GPV, up 190% since December, and management said April alone added more sellers than the product's entire prior history, following a switch from inbound sign-up to auto-enrolment and the addition of in-store redemption. Roughly 100,000 Cash App followers are in the programme, about half of whom were not active on Cash App in the month before joining. For participating sellers, spend from followers reaches roughly 10% of their gross payment volume after a few quarters, and messaging conversion rates run around six times those of the sellers' own marketing emails.

Assessment: Two quarters ago this was a strategy slide. It now has an adoption curve, a cohort economic, and a customer-acquisition claim (half of participating followers were dormant or new to Cash App) that speaks directly to the network growth constraint. At $320M of annualised GPV it is still immaterial to 2026 revenue, and management's own framing is that it becomes more than a rounding error on Cash App actives in the second half. We continue to model nothing and we now regard this as the most interesting unpriced item in the story.

Key Topics & Management Commentary

Overall Management Tone: Settled and specific, a marked change from February's declarative posture. The prepared remarks led with operating detail rather than strategy, the restructuring was discussed as a completed action with named residual problems rather than as a thesis, and April data was volunteered across both ecosystems. Where the call was least satisfying was on legal contingencies, which were accrued, folded into an $852M charge line, and never mentioned again.

1. The Cost Structure Arrived a Quarter Early

Adjusted operating margin reached 25% against a 21% guide, and non-GAAP operating expenses fell sequentially for the first time in the period we have examined, to $2,194M from $2,298M. In February management explicitly said Q1 would see a less meaningful impact because of the timing within the quarter and notice periods for employees outside the United States, with the full effect landing in the second half.

Assessment: Beating your own cost guidance by 400 basis points of margin eleven weeks after setting it is either conservatism or faster execution, and the sequential expense decline suggests the latter. The forward implication matters more than the beat: if Q1 already carries a partial benefit and the full run-rate lands in the second half, the second-half margin trajectory embedded in the $3.34B full-year guide may itself be conservative. That is the main reason our estimate now sits above the guide.

2. Gross Profit Growth Accelerated to 27% With Both Ecosystems Contributing

The five-quarter sequence is now 9%, 14%, 18%, 24%, 27%. This is the first quarter in that run where the acceleration did not depend on Cash App alone: Square gross profit growth improved to 9% from 7% and commerce enablement gross profit growth improved to 15% from 11%.

Assessment: The single most important change in the quarter for how the business should be valued. Our persistent concern has been that a 24–27% consolidated growth rate was a blend of an 11% payments business and a 51% lending business, which deserves a lower multiple than the headline suggests. Commerce enablement at 15% narrows that gap materially. If it holds at mid-teens while lending normalises as guided, the blend converges rather than diverging, and the multiple argument improves.

3. Borrow Loss Rates, Finally Disclosed by Cohort

The 3.16% / 3.01% / 2.67% curve by cohort age is the first vintage-level credit disclosure the company has made. Management paired it with a forward statement that loss expense growth rates decline through the rest of 2026 as originations normalise and the mix seasons.

Assessment: The disclosure improves the quality of the debate rather than settling it. What it establishes is that the book seasons favourably and that management is willing to show the curve. What it does not establish is how the curve behaves in a labour market that deteriorates, since every cohort shown was originated into a benign environment. The number to track from here is whether the 0–6 month rate stays near 3.16% as the newest cohorts are drawn from progressively less pre-qualified populations.

4. Guidance Raised for a Third Consecutive Quarter

Full-year gross profit went to $12.33B from $12.20B, adjusted operating income to $3.34B from $3.20B at a 27% margin, and adjusted diluted EPS to $3.85 from $3.66. Q2 is guided to $3.04B of gross profit, $740M of adjusted operating income at a 24% margin, and $0.86 of adjusted EPS.

The full-year raise of $140M in adjusted operating income is almost exactly the $128M Q1 beat, so management has flowed the quarter through and added little.

Assessment: The pattern is now established across three quarters: guide, beat by a mid-single-digit percentage on gross profit and a larger margin on profitability, raise the year by roughly the beat. A company that beat its own margin guide by 400 basis points and raised the year by only the amount of the beat is either genuinely uncertain about the second half or is managing the bar. The Q2 guide implies a margin step down to 24% from 25%, which management attributed to a deliberate increase in go-to-market spend, so the sequencing is disclosed rather than hidden.

5. The $852M Charge, and the Part Inside It That Was Not Explained

GAAP operating loss of $172M carries $852M of restructuring and other charges: $110M of restructuring share-based compensation and $743M of contingencies, restructuring and other charges, the latter including accrued legal contingencies recorded in general and administrative expense. GAAP general and administrative rose 74% year over year as a result, while the non-GAAP figure fell 4%.

Assessment: The restructuring cost is now disclosed, which closes the first gap on our February list. The legal accrual is not sized, not described, and not attributed to any matter, and it is material enough to be named alongside a company-wide restructuring in the same charge line. A reader cannot tell whether the accrual is $20M or $300M. We treat this as the single largest disclosure gap in the quarter and would expect the 10-Q to say more.

6. Product Velocity Made Concrete

"Production code changes per engineer increased more than 2.5x from January to April, and we've seen AI expand what it means to be a builder, both for our customers and our internal operations. Production code changes made by non-engineers at Block were up nearly 60% in April compared to January." — Amrita Ahuja, CFO

Management also gave a worked example: a buy-now-pay-later capability for Cash App Pay originally scoped at three months and five to six engineers was built and shipped by two machine-learning engineers with no prior exposure to the services in three to four weeks.

Assessment: The metric remains a throughput proxy and the anecdote remains an anecdote, but the shipped product list is the check that matters and it is long: Moneybot generally available, Managerbot to more than a million sellers with all Square sellers targeted by June, Afterpay pre-purchase, buy-now-pay-later on peer-to-peer and Cash App Pay, Cash App Score rolling out, managed accounts for children aged six to twelve, and the next-generation Square Register. A company that cut 40% of its staff in February and shipped that list by early May has answered the execution question for one quarter.

7. Moneybot and Managerbot Move From Announcement to Usage Data

Moneybot reached one million actives in roughly a week of general availability with no in-app or external marketing, and management said more than a third of customers making a money movement through it were attaching to a new product. Managerbot is live for over a million sellers with more than 100 local agents operating on a seller's data, and management said retention among sellers who use it surprised to the upside.

Assessment: The cross-sell statistic is the one with modelling consequence. If a third of Moneybot-initiated money movements attach a new product, the assistant is functioning as a distribution channel for the rest of the Cash App catalogue rather than as a support tool, which is the difference between a cost saving and a gross profit driver. It is a single early data point on a product weeks old, disclosed without a denominator, and it is the first evidence that the intelligence layer touches revenue.

8. Bitcoin Fees Cut Deliberately

Bitcoin ecosystem gross profit fell 26% to $68M, which management attributed to trading dynamics and to a strategic decision to reduce the fee charged on certain bitcoin transactions in Cash App.

Assessment: A deliberate $24M year-over-year gross profit sacrifice to defend positioning in a product line that is 2% of company gross profit. The strategic logic (be the cheapest and simplest access point, drive engagement) is coherent and the amount is affordable inside a 27% growth quarter. It also means the bitcoin line is now a small, structurally declining contributor rather than a swing factor, which simplifies the model.

9. Cash Flow Turned Positive

Non-GAAP cash flow was positive $363M against negative $342M in Q4 and negative $141M in Q1 2025, taking the trailing twelve-month figure to positive $128M from negative $376M a quarter ago. Free cash flow was $935M. The company deployed $2.8B into lending over twelve months, down from $3.0B at the prior measurement.

Assessment: The swing is largely origination timing (Q1 originations of $17.6B were below Q4's $18.5B) rather than a structural change, so this should not be read as the lending book becoming self-funding. It does remove the near-term pressure created by simultaneously growing the loan book and buying back stock, and it is consistent with management's guidance that origination growth normalises through the year.

10. Buybacks Continue at Pace

The company repurchased 10.7M shares for $636M in the quarter, leaving $4.7B of authorisation. Adjusted diluted share count fell 4.9% year over year to 604M. Total liquidity was $9.1B, with $8.2B of cash and investments.

Assessment: Roughly five points of the 52% adjusted EPS growth came from share count. That is a meaningful and repeatable contribution while the authorisation lasts, and at the current pace the remaining $4.7B is about seven quarters of buying. It is not the reason to own the stock, but it materially lowers the operating growth needed to hit the 2028 earnings target.

Guidance & Outlook

Implied shape: the full-year gross profit guide of $12.33B against $2.909B delivered and $3.04B guided for Q2 leaves $6.38B across the second half, an average of $3.19B per quarter, against $2.97B in the first half. On adjusted operating income, $3.34B less $728M and $740M leaves $1.87B across Q3 and Q4, an average margin of roughly 29% against 25% and 24% in the first two quarters. The second half carries both the margin step-up and the guided deceleration to a mid-teens exit growth rate at the same time.

Guidance style: conservative on gross profit and consistently so. Management has now beaten its own gross profit guide by 2.4%, 4.3% and 3.9% in three consecutive quarters, and beaten its adjusted operating income guide by 4.3%, 5.0% and 21.3%. The escalating profitability beats reflect a cost structure in transition that the company itself is having difficulty forecasting.

What is still not guided: credit loss expense in dollars, the legal contingency accrual, Neighborhoods, Cash App Score, Proto (which was not mentioned at all this quarter), and any update to the 2027 or 2028 targets.

Analyst Q&A Highlights

What in the Quarter Justified Raising the Year by More Than the Beat

The first substantive question asked which specific drivers gave management the confidence to raise both gross profit and profitability guidance rather than simply flowing the quarter through. The answer catalogued the input metrics on both sides of the business and, more usefully, named what management is watching in the second half, including an explicit acknowledgment that the lending contribution normalises from here.

Q: "Nice job on the quarter. It's great to see you raise the outlook for the year… not only for the beat in the quarter, but also by more than the beat on both gross profit and operating income. If you don't mind just touching further on the areas of strength you saw in the first quarter that are informing your view on the rest of the year, maybe giving some specific examples and KPIs."
— Darrin Peller, Wolfe Research

A: "We've started April with continued healthy trends and strong momentum, even as we expect Borrow growth to normalize as we now begin to lap some of the very exceptional growth that we've seen for Borrow over this past year… all of that ladders up to in our guidance an expectation — a continued expectation that we'd exit the year in that mid-teens gross profit growth range."
— Amrita Ahuja, CFO

Assessment: The important content is the admission built into the answer. The exit rate is guided to mid-teens from 27% today, and the bridge down is Borrow lapping its own comparison. That means the second half growth deceleration is planned and disclosed rather than a risk, and it also means the quality of the 2027 setup depends on whether commerce enablement can hold mid-teens once lending stops contributing outsized growth. That is the single most important variable in the model and it is two quarters from being visible.

A Post-Mortem on the Reorganisation

A question asked what has worked, what has not, and what an outsider should watch as evidence the restructuring is achieving its aim. The answer named a concrete operational problem the reduction created, which is the most credible thing management said about the change all quarter.

Q: "I just wanted to get a postmortem maybe of the reorg so far. I'd love to get your thoughts, just what's worked better than expected, where you're seeing challenges or any regrets? And in the near term, beyond the cost savings and achieving guidance that you guys laid out, what are you tracking? What are you watching for?"
— Tien-Tsin Huang, JPMorgan

A: "As we've been writing a lot more code with the help of AI agents, we have a lot more PRs. And in order to merge them into the mainline code base, it puts a greater burden on reviewing those. But we've managed to figure that one out… We had specific principles that we wanted to guide towards around reliability, around making sure that we were committed to all of our regulatory and trust commitments and that we could continue to grow the business, and we've been able to hit all of those."
— Jack Dorsey, Block Head and Chairperson

Assessment: Naming code review as the binding constraint is a specific, checkable admission rather than a reassurance, and it is precisely the failure mode a smaller engineering organisation with more generated output would hit. The regulatory and trust commitment language addresses the risk we raised in February, that a regulated lender cannot thin its control functions the way it thins product teams, though it addresses it by assertion. One quarter without an incident is evidence, not proof.

Where Cash App Growth Comes From After the Borrow Ramp

A question looked past 2026 to ask what drives the ecosystem in 2027 and 2028 once state expansion for Borrow is complete. The answer laid out the strategy of embedding lending into every other Cash App surface rather than growing it as a standalone product, and disclosed a pattern across the lending portfolio.

Q: "A common investor discussion topic is around the Cash App growth as we get into 2027 and into 2028, so basically the rest of the medium-term guide. And we're often asked, what are some of the big drivers once we get past the states expansion for Cash App Borrow…"
— Timothy Chiodo, UBS

A: "We've seen that, that product has grown faster than even Borrow grew at a similar point in its life. In fact, each of our lending products has grown faster than the prior one at a similar point in life. It shows the compounding nature of the sort of knowledge that we're building up in the models that we have here."
— Amrita Ahuja, CFO

Assessment: "Each of our lending products has grown faster than the prior one at a similar point in life" is a strong claim and a double-edged one. It supports the argument that the underwriting infrastructure is a reusable asset with compounding returns. It also means each successive product ramps into a customer base that already carries credit from the prior products, and the company has not disclosed how much overlap exists between Borrow, post-purchase and pre-purchase borrowers. Cross-product exposure per customer is the disclosure gap that replaces the cohort loss rates now that those have been given.

Whether the Square Gross Profit Gap Fully Closes

A question probed whether the spread between Square gross profit growth and volume growth converges completely in the second half or whether a structural gap persists from seller mix, geography and product mix. Management reaffirmed the second-half convergence without extending it and named the lever it depends on.

Q: "When we think about the back half and beyond, if you could discuss some of the key influences and whether the spread should fully converge or whether there's a smaller persistent spread that we should be modeling, that would be helpful."
— Andrew Schmidt, KeyBanc

A: "We continue to expect Square gross profit to grow roughly in line with GPV growth in the second half of this year. And as you noted, pricing and packaging work, both what we've already launched, but scaling that more broadly across our existing seller base as well as net new pricing and packaging opportunities are really the key drivers of that longer-term framework."
— Amrita Ahuja, CFO

Assessment: The commitment held for a full quarter without moving, which is new. The answer also relocates the burden: convergence now depends on pricing and packaging rather than on headwinds lapping, and pricing actions are discretionary and reversible in a way that a lapping comparison is not. We take that as a modest downgrade in the quality of the commitment even as its date held.

What Is Actually Driving the Increase in Product Velocity

A question asked what is behind the visible step-up in shipping cadence. The answer split it between organisational structure and tooling, and supplied a worked example specific enough to be evaluated.

Q: "It looks like the product velocity is starting to tick up and doing really well. You're shipping a lot more products. I mean the question that we have and we're getting a lot from investors is what is driving the uptick in product velocity and what is supporting it?"
— Dan Dolev, Mizuho

A: "We're working on Buy Now, Pay Later for Cash App Pay… That was scoped to roughly 3 months and 5 to 6 engineers. And then what actually happened in late March and April is 2 machine learning engineers who had actually like no prior exposure to these services, they built it and shipped it all in 3 or 4 weeks, inclusive of all the quality testing that we needed to do."
— Owen Jennings, Business Lead

Assessment: A roughly six-fold improvement in a single well-specified case, delivered by engineers unfamiliar with the codebase, which is the harder version of the test. One example is not a distribution and the selection is obviously favourable. The aggregate check is the shipped list and the flat-to-down non-GAAP product development expense, and both are consistent with the claim. This is the strongest support the AI productivity argument has had in the three quarters it has been made.

Managerbot and Moneybot Early Usage

A question asked what early usage of the seller assistant reveals about retention, cross-sell and volume. The answer gave the first engagement data on either assistant and the cross-sell statistic that connects them to revenue.

Q: "I wanted to ask on Managerbot. So just with the broader rollout across the 1 million-plus sellers and understanding it's still early, I was hoping you could talk a little bit about what you're seeing in terms of any early impact on retention, cross-sell, GPV."
— Bryan Bergin, TD Cowen

A: "For more than 1/3 of customers who are making a money movement via Moneybot, that money movement is them attaching to a new product… We just rolled out Moneybot to GA. We haven't done any marketing in the app or outside of the app, and we've already had 1 million actives use Moneybot over the past week or so."
— Owen Jennings, Business Lead

Assessment: One million actives in a week with zero marketing is a genuine adoption signal for a base of 59 million. The one-third attach statistic has no denominator disclosed and is measured on the earliest, most engaged users, so it will decay as usage broadens. Even discounted heavily, an assistant that converts a routine money movement into a product attachment a meaningful fraction of the time is a distribution asset, and it is the first mechanism management has described that could lift monetization without adding a new product.

Neighborhoods Moves From Concept to Cohort Data

A question asked what the newly disclosed Neighborhoods figures actually mean for both sides of the business. The answer supplied the programme's unit economics for the first time and set an expectation for when it affects reported metrics.

Q: "I saw in the letter as of March, it scaled to $320 million in annualized GPV. And I think April, it added more sellers than the entire history… Can you just help us understand what Neighborhoods is going to mean for both Cash App and seller as this continues to grow and take hold?"
— Bryan Keane, Citi

A: "The spend at a seller from followers for a seller who's engaged in Neighborhoods reaches about 10% of their overall GPV after a few quarters… At this point, I think we have roughly 100,000 followers on Cash App as a part of this program and about half of them were not active on Cash App in the month prior before they signed up for Neighborhoods."
— Owen Jennings, Business Lead

Assessment: The second statistic is the one that matters. If half of Neighborhoods followers were dormant or new to Cash App, the programme is a customer acquisition channel for the consumer app funded by the seller side, which is the specific synergy Block has claimed for years without evidence. The absolute numbers are tiny, 100,000 followers against 59 million actives, and management's own guidance is that it stops being a rounding error on actives in the second half. The pillar moves from unproven to early evidence.

What They're NOT Saying

1. The size of the legal contingency accrual: it is named as a component of the $852M charge and of the 74% GAAP increase in general and administrative expense, and it is never quantified, described or attributed to a matter.
2. Cross-product credit exposure per customer: Borrow, Afterpay post-purchase and Afterpay pre-purchase are all being pushed into the same customer base underwritten by the same model. No disclosure of overlap, of aggregate exposure per borrower, or of whether cohort loss rates are measured per product or per customer.
3. Proto: not mentioned once in the prepared remarks or Q&A. Two quarters ago it was framed as a potential next major ecosystem; bitcoin ecosystem gross profit fell 26% this quarter.
4. Which functions absorbed the reduction: still unanswered a quarter later. Management asserted that regulatory and trust commitments were maintained without describing how headcount in those functions changed.
5. Attrition since February: no disclosure of voluntary departures among the roughly 6,000 remaining employees, which is the metric that determines whether the new structure is stable.
6. The Cash App Score business model: rolling out to customers and being offered to third parties with no pricing, no partner named, no revenue model and no timeline, for a second consecutive quarter.
7. Loss expense guidance in dollars: management guided the growth rate to decline without giving a level, on a line that is now 17.2% of gross profit.
8. Any 2027 or 2028 revision: a third consecutive raise to 2026 with the outer-year targets untouched, and the same unaddressed gap between 62% growth this year and the implied rate thereafter.

Market Reaction

• Pre-print setup: XYZ closed at $70.14 on May 7, up 7.8% year to date against the S&P 500's +7.2%, up 46.3% over twelve months and up 17.0% over the prior 30 days. The stock entered the print having already re-rated hard off the February low, with the 52-week closing range at $47.29 to $81.11.
• Reaction session: opened at $75.63, up 7.8%, traded between $72.50 and $77.16, and closed at $74.85, up 6.7% or $4.71.
• Volume: 12.9M shares against a 5.1M 30-day average, 2.5x normal, well below February's 5.0x.
• Benchmark: the S&P 500 closed up 0.8%, so roughly six points of the move was single-stock.

A 6.7% gain on a quarter that beat operating income by 21% and raised the year for a third time is a smaller reaction than the print deserved on its own terms, and the reason is in the setup rather than the result. The stock had already risen 17% in the 30 days into the print, so a meaningful part of the beat was anticipated. Volume at 2.5x normal against February's 5.0x tells the same story: this was a confirmation, not a repricing.

The more telling comparison is against our own coverage. We passed on the stock at $65.45 in November and upgraded at $63.70 in February. It now trades at $74.85, up 17.5% since the upgrade, while the company has raised its 2026 earnings guidance from $3.66 to $3.85 over the same eleven weeks. The multiple has expanded, but less than the estimates have.

Street Perspective

Debate: Is the Margin Step-Up Durable or a One-Time Reset?

Bull view: The bull case holds that the 25% margin, four points above guide, understates the run rate because the full cost structure has not arrived. Non-GAAP operating expenses fell sequentially with international notice periods still flowing through, and management has said the complete effect lands in the second half. On that view the $3.34B full-year guide is conservative and 2027 margins step higher again as the reinvestment in go-to-market annualises.

Bear view: The bear camp contends this is a one-time reset being priced as a growth rate. Cutting 40% of a workforce produces a step function in the cost base, not a compounding advantage, and once it is lapped in 2027 the margin expansion stops unless gross profit reaccelerates, which management has explicitly guided against with a mid-teens exit rate.

Our take: Both are right about different years. 2026 margin expansion is largely a reset and will be substantially delivered; 2027 expansion has to come from operating leverage on mid-teens growth, which is a much harder ask. What makes us constructive anyway is that the reset is worth roughly $1.3B of annualised adjusted operating income against a $43.6B enterprise value, and the market is paying 13.1x the guided figure for it.

Debate: Does the Cohort Disclosure Settle the Credit Question?

Bull view: The bull argument is that Block has now shown the curve and it slopes the right way, with seasoned cohorts at 2.67% against 3.16% for the newest, on a book where originations grew 82%. Management has guided loss expense growth down through the year as the mix seasons, which means the loss line becomes a tailwind to margin in 2027 without any change in underwriting.

Bear view: The bear response is that every cohort disclosed was originated into a benign consumer environment, that a 3.16% loss rate on the newest cohort is above the level management cited as a target six months ago, and that consolidated loss expense of $500M is now 17.2% of gross profit and growing at 195%. Vintage disclosure improves transparency without changing the underlying exposure.

Our take: The disclosure genuinely improves the analysis and does not resolve the risk. What it changes is that the debate now has a number attached to it, which means the next four quarters produce evidence rather than assertion. We regard the 0–6 month cohort rate as the single most important figure Block publishes.

Debate: Is Commerce Enablement's Acceleration Real?

Bull view: Commerce enablement gross profit growth went to 15% from four quarters at 9–11%, driven by Cash App Card, accelerating buy-now-pay-later attach and a nine basis point rise in the Cash App monetization rate. Square GPV grew 13% with food and beverage at 21% and mid-market at 22%. This is the payments business reaccelerating on its own, which removes the objection that Block is only a lender in disguise.

Bear view: The skeptical reading is that commerce enablement's acceleration is itself lending-adjacent, since the named drivers are buy-now-pay-later attach on the Cash App Card and post-purchase products. Strip those and the underlying payments growth is closer to the low double digits it has been. Square's own commerce enablement monetization rate fell eight basis points year over year.

Our take: The bear has identified a genuine ambiguity in the category definition, since buy-now-pay-later volume sits in commerce enablement while its credit cost sits in operating expenses. Even allowing for that, Square GPV at 13% and food and beverage at 21% are unambiguous payments metrics and they accelerated. We give the bull the quarter and we would want a second one before treating mid-teens commerce enablement growth as the new base.

Model & Valuation Framework

Valuation conclusion: we hold the 16x base multiple for a third consecutive quarter, so the target moves from $83 to $93 entirely on the earnings estimate. That discipline matters here, because the temptation after two quarters of beats is to re-rate the multiple and the estimate at once. The 2028 target is now 13.6x, which is where the long-term argument sits: if Block earns roughly $5.50 in 2028 and clears a 16x multiple on the operating income that produces it, the stock is worth materially more than our twelve-month target. We are not underwriting that yet.

Thesis Scorecard Post-Earnings

Commitments from the Q4 call, graded: Q1 adjusted operating income of $600M at 21% margin, delivered at $728M and 25%. Gross profit of $2.80B, delivered at $2.909B. Adjusted EPS of $0.67, delivered at $0.85. Margins expanding every quarter from the Q1 starting point, on track but the Q2 guide steps down to 24% on deliberate go-to-market spend, which is a disclosed deviation from the stated pattern. Loss growth higher in the first half, confirmed at +195%. Square convergence in the second half, maintained. Six commitments, five beaten or met, one modified with an explanation.

Overall: the strongest quarter in the four we have examined, and the first in which no pillar moved against us. Two bear points are now resolved rather than contained, the credit bear point has a number attached to it for the first time, and the Square bull point recovered. The residual risks are unchanged in kind: an unseasoned loan book, an unsized legal accrual, and a 2027 growth rate that depends on commerce enablement holding mid-teens once lending normalises.

Action: maintain Outperform, target raised to $93 from $83. We would downgrade on the 0–6 month Borrow cohort loss rate moving above roughly 3.5%, on commerce enablement gross profit growth falling back below 11% as lending normalises, on the second-half Square convergence slipping after two quarters of holding, or on the legal accrual proving material when the 10-Q discloses it.

Bottom Line

In February we upgraded on the argument that the market was pricing a restructuring it did not believe. One quarter later the cost benefit arrived earlier and larger than the company's own guidance, gross profit accelerated rather than breaking, and the product shipping cadence went up rather than down. That is close to the best available outcome for a bet of that kind, and the stock is up 17.5% since.

What has genuinely improved is the quality of the disclosure. Block has now published the Borrow loss curve by cohort age, sized the restructuring charge, and given Neighborhoods a unit economic. Each of those was an open item on our list a quarter ago. What has not improved is the concentration of the growth: financial solutions still supplies 70% of incremental gross profit, and management has guided the exit growth rate down to the mid-teens as that contribution normalises. The 2027 question is whether commerce enablement at 15% is the new base or a good quarter.

At 12.8x our 2026 operating income estimate and 18.6x our adjusted EPS estimate, with a company that has beaten and raised three quarters running, the risk/reward still favours ownership. We maintain Outperform and raise our target to $93, and the two numbers we will grade next quarter are the newest Borrow cohort's loss rate and whether commerce enablement holds mid-teens.