Block Inc (NYSE: XYZ)
1Q26 Financials
Increasingly balanced contribution of the two ecosystems. Block reported total 1Q26 revenue of $6.06B. Excluding Bitcoin, Square (~$2.1B) and Cash App (~$2.1B) each contributed approximately 50% of net revenue, reflecting the increasingly balanced contribution of the two ecosystems. Square remains transaction-revenue-heavy, with the majority of its $2.11B generated through commerce enablement fees and payment processing. Cash App's revenue ex-Bitcoin was roughly evenly split between transaction-based revenue (~50%) and financial solutions (~50%), underscoring the ongoing monetisation diversification within the app.
Continued Strong Momentum from Cash App. Cash App’s Financial Solutions revenue grew 51% YoY, driven primarily by Cash App Borrow, which expanded 175% YoY. Credit quality remained well-contained with a gross loss rate of approximately 3%. Commerce grew 20% YoY. Combined, these drove Cash App gross profit up 38% YoY.
Square — Steady but Margin Pressure Emerging. Square total revenue grew 14% YoY in 1Q26. Within the segment, Commerce Enablement expanded 11% YoY, while Financial Solutions (Square Loans) grew 24% YoY, continuing to be the higher-growth driver within the ecosystem. However, gross margin compressed from approximately 48.5% to 46.5%, as revenue mix shifted toward lower-margin hardware and processing relative to software and financial services. Gross profit grew only 9.4% YoY versus 14% revenue growth, confirming the dilutive mix effect.
Expansion in Group’s gross margin. Group gross margin (excluding Bitcoin) expanded to approximately 66.7% from 63.8% in 1Q25, primarily attributable to the increasing mix of high-margin financial solutions revenue.
GAAP operating loss came in at -$172M vs. +$330M in 1Q25, a significant swing driven by $852M in total restructuring and related charges in the quarter. This included $743M in contingency/restructuring charges and $110M in restructuring-related share-based compensation. Management's AI-driven workforce reduction of approximately 40% (~4,000+ roles) is intended to support the reinvestment directed toward AI tooling and product development.
Investment View — No Change
Cash App remains the primary value driver, underpinned by strong habit formation, consumer stickiness, and a differentiated value proposition targeted at gig workers and the underbanked — a segment structurally underserved by traditional financial institutions.
On the Square side, the emerging competitive risk remains: as AI continues to lower the barrier of entry for POS gateway solutions and commerce enablement software, Square's dominance in the SMB market may face greater pressure over the medium term.
Conservative on savings from restructuring. I take a conservative stance on the restructuring savings. Product development headcount reductions are modelled as non-incremental to my estimates, on the basis that management has signalled reinvestment of those savings into AI infrastructure and product development, effectively netting to zero. Only G&A-related savings are treated as permanent and structural in my forward estimates.
Slightly adjust the target price to $78. Upside risk: should reinvestment discipline hold and product development costs remain structurally lower than the pre-restructuring baseline, the forward earnings estimates would prove conservative, representing a natural catalyst for upward revision (if product development costs remain similar to 2025 level, price target would revise to $90).