Block: Riding the Stablecoin Tailwind, Finally a Rebound?

U.S. Payment Sector Leader - Block (XYZ.US) released its Q2 2025 earnings report after the U.S. stock market closed on August 8. Overall, the quarterly performance was decent, with most key indicators surpassing expectations, though there were some minor issues. The guidance for the next quarter's adjusted operating profit is expected to decline sequentially, falling short of expectations, which is the main concern. Key points are as follows:

1. Block's total revenue for the quarter was $6.05 billion, continuing a year-over-year decline of 1.6%, seemingly falling significantly short of expectations. However, this was mainly due to the drag from sluggish BTC transactions in Q2. Excluding this business, core revenue grew by 10.3% year-over-year, a notable improvement from last quarter's 7.6%, and actual revenue performance exceeded expectations.

On the profitability front, the most watched gross profit increased by 13.6% year-over-year, significantly accelerating from last quarter's 9.3%, with actual gross profit exceeding expectations by about 3%. In addition to revenue growth recovery, driven by the Cash App segment, the overall gross margin for the quarter exceeded expectations, rising 2.2 percentage points sequentially, further enhancing gross profit performance.

2. By segment, the main contributor to the overall gross profit exceeding expectations was the strong performance of the Cash App segment. Excluding the BTC business, Cash App segment gross profit revenue grew by 15% year-over-year, accelerating from last quarter's 12%. The gross margin was 83.4%, slightly up 0.1 percentage points sequentially. In contrast, market expectations were very conservative, with Bloomberg's sell-side expectations for gross margin at only 81.3%, flat year-over-year.

The Square segment's gross profit was roughly in line with expectations, with a slight sequential contraction in gross margin, also slightly below market expectations. The segment's gross profit increased by 11.3% year-over-year, roughly in line with expectations, slightly below the overall gross profit growth rate.

3. In the Square segment, revenue for the quarter was $1.76 billion, up 9.4% year-over-year, a slight acceleration from last quarter's 7.1%, slightly better than expected. After hovering at the bottom for a long time, there is finally a preliminary recovery trend, but whether it can be sustained remains to be seen.

The main factor driving the recovery was the approximately 2.9 percentage point sequential increase in the growth rate of transaction commission revenue, which is the largest component. Behind this is the total payment volume of Square merchants for the quarter grew by 10% year-over-year, recovering from last quarter's 7.3%.

There are two reasons for the recovery in payment volume growth: first, the payment volume of large merchants grew significantly by 16.7% this quarter, accelerating significantly sequentially; second, international payment volume, accounting for about 19%, grew by 25% year-over-year this quarter, significantly outperforming the 7% growth rate in the U.S. domestic market. In other words, the upward market and international market are the main sources of growth.

4. Excluding the BTC business, the Cash App segment achieved a 12% year-over-year revenue growth this quarter, also accelerating from last quarter's 9.4%, slightly exceeding expectations. However, despite good revenue performance, underlying operating indicators did not show an improving trend.

Firstly, the overall monthly active users of Cash App remained at 57 million, with almost zero sequential growth for six consecutive quarters. This quarter, the total inflow of funds into the Cash App ecosystem was $76.4 billion, growing by about 8% year-over-year, also flat sequentially with no acceleration trend.

The acceleration in revenue this quarter was mainly due to an increase in monetization rate (up 10 basis points year-over-year), which Dolphin speculates may be a positive from continued penetration of credit business.

5. In terms of expenses, total spending for the quarter was about $480 million, up 6.5% year-over-year, slightly accelerating and slightly more than the expected $467 million. Specifically, this quarter saw a $290 million credit loss provision, significantly higher than the usual $170-$190 million. Other regular three expenses actually saw a year-over-year growth rate decline compared to last quarter.

Overall, due to gross profit growth exceeding expectations and expenses still growing slower than gross profit and revenue, profits also improved. The GAAP operating profit as a percentage of gross profit was 19.1%, a significant sequential increase of 4.8 percentage points, ultimately achieving an operating profit of $480 million. The adjusted figure was $550 million, $100 million more than market expectations.

6. For the next quarter's guidance, the company expects gross profit to grow by 15.6% year-over-year, continuing to accelerate from this quarter and better than expected. However, possibly due to continued investment, the guidance for next quarter's adjusted operating profit is $460 million, down sequentially from this quarter and below the expected $510 million. The profit margin (as a percentage of gross profit) is expected to decrease from this quarter's 19.1% to 18%.

For the full year 2025 guidance, the company has raised the gross profit growth guidance from 12% back to 14%. Adjusted operating profit has also been raised from $1.9 billion back to $2 billion. The profit margin (as a percentage of gross profit) is expected to increase from 19% back to 20%.

Dolphin Research View:

Summarizing the above, Block's performance this quarter showed a decent recovery from the extremely poor performance of the previous quarter. Revenue, gross profit, and operating profit growth all accelerated to some extent and generally exceeded expectations.

The Square segment, driven by internationalization and upward upgrades, saw improvements in payment volume and payment revenue. Meanwhile, in the Cash App segment, on one hand, the underlying operating indicators showed no significant improvement (user numbers stopped growing, and fund inflows showed no acceleration), which is not a good signal. On the other hand, as credit card, BNPL, and consumer loan businesses advance, the revenue monetized from the relatively stable Cash App business is still improving.

In the short to medium term, based on the company's guidance, next quarter's gross profit growth is nearly 16%, implying a Q4 growth rate of 22%, with growth continuing to trend upward.

However, while growth is positive, the implied adjusted operating profit margin for Q3 and Q4 is expected to remain stable at around 18% to 20%, slightly lower than the first half of the year. This means that expense growth will relatively expand, leading to profit performance not being as strong as the growth side.

Beyond performance, as the company is one of the few with both payment and cryptocurrency businesses, the market's huge imagination space for stablecoins potentially penetrating daily payments and consumption is undoubtedly a major positive logic for the company.

However, due to the recent stablecoin craze, the company's stock price has already risen significantly, and with the increase after this performance, the company's market value is approaching $50 billion, corresponding to the company's raised guidance of $2 billion adjusted operating profit for 2025, with a valuation of nearly 25x. After deducting taxes, the valuation would be close to 30x. However, Dolphin believes that the company's short to medium-term performance may not necessarily match such a valuation. Compared to the significant drop after last quarter's earnings, when the corresponding adjusted operating profit was only 16x, it was considered a good bottom-fishing opportunity. Currently, to some extent, it includes the optimistic sentiment towards stablecoins, and the cost-effectiveness is not as high as it was then.

Below are the key charts:

Before diving into specifics, business structure is rather complex. Comprises two main segments: Square, serving merchants, and Cash App, serving consumers. Each segment further contains multiple sub-business lines, summarized in the table below for initial familiarization.

In simple terms:

1）Square generates primary revenue from payment-processing fees based on merchants’ transaction volumes, with supplemental service revenues from merchant loans and various subscription-based SaaS offerings.

2）Cash App’s revenue mix is more complex, driven mainly by service fees from the Cash Card (co-branded credit card) and interest income from various consumer loans.

3）Although BTC trading services are officially included under Cash App, they are typically treated separately due to the extreme volatility of cryptocurrency markets.

I. Square Segment: Transaction Volume Recovery Drives Revenue Growth

This quarter, the Square segment achieved revenue of $1.76 billion, up 9.4% year-over-year, a slight acceleration from last quarter's 7.1%, slightly better than expected. After hovering at the bottom for a long time, the Square segment has shown a preliminary recovery trend, but whether it can be sustained remains to be seen.

By sub-business line, the approximately 2.9 percentage point sequential increase in the growth rate of transaction commission revenue, which is the largest component, is the main factor driving the recovery. Subscription service revenue continues to maintain a relatively higher growth of 14.5%, with the growth rate remaining flat sequentially.

Behind the increase in transaction revenue growth is the fact that the total payment volume of Square merchants for the quarter grew by 10% year-over-year, recovering from last quarter's 7.3%, finally returning to double-digit growth after five quarters. The significant growth in payment volume from large merchants with annual payment volumes exceeding $500,000 was the main contributor, with a year-over-year growth of 16.7% this quarter, significantly accelerating sequentially, and the highest among all merchant categories.

From another perspective, the international payment volume, accounting for about 19%, grew by 25% year-over-year this quarter, significantly outperforming the 7% growth rate in U.S. payment volume, which is also one of the reasons for the overall growth recovery this quarter.

As for the monetization rate of payment revenue, it remained flat sequentially at 2.74%, with no further decline.

II. Cash App: Stable Operating Indicators, Rising Monetization Rate Drives Revenue

Excluding the BTC business, the Cash App segment achieved revenue of $1.7 billion this quarter, growing by about 12% year-over-year, also accelerating from last quarter's 9.4%, slightly exceeding expectations.

By sub-revenue type, Cash App payment revenue continues to shrink at a year-over-year rate of -39%, indicating that Cash App 2B payments have essentially failed. The required payment revenue accounts for a very low proportion, while core service revenue grew by 16% year-over-year, accelerating by nearly 3 percentage points sequentially.

On the underlying operating data, the overall monthly active users of Cash App remained at 57 million this quarter, with almost zero sequential growth for six consecutive quarters. The total funds flowing into the Cash App ecosystem this quarter were $76.4 billion, growing by about 8% year-over-year, also showing no acceleration trend.

It is evident that the underlying operating indicators of Cash App have not shown significant improvement, and the acceleration in revenue this quarter is mainly due to the increase in monetization rate both year-over-year and sequentially (up 10 basis points year-over-year). Dolphin speculates that this may be a positive from continued penetration of credit business.

As for the BTC transaction business, due to the impact of the U.S. tariff "liberation day" in April, the overall cryptocurrency trading sentiment was not high in the second quarter, resulting in the company's BTC transaction revenue declining by nearly 18% year-over-year.

III. Cash App Drives Acceleration in Gross Profit Growth

Summarizing all the above businesses, Block's total revenue for the quarter was $6.05 billion, continuing a year-over-year decline of 1.6%, seemingly falling significantly short of expectations. However, this was mainly due to the drag from sluggish BTC transactions in Q2. Excluding this business, core revenue grew by 10.3% year-over-year, a notable improvement from last quarter's 7.6%, and actual revenue performance exceeded expectations.

The most watched indicator, the overall gross profit for the quarter was $2.54 billion, exceeding expectations by $74 million, growing by 13.6% year-over-year, significantly outperforming the market expectation of 10% growth.

By segment, the Square segment's gross profit was roughly in line with expectations, with a year-over-year increase of 0.8 percentage points in gross margin, but a sequential contraction, also slightly below market expectations. Therefore, the Square segment's gross profit increased by 11.3% year-over-year, roughly in line with expectations.

As for the Cash App's gross profit performance, it was relatively strong, being the main contributor to the overall gross profit exceeding expectations. Excluding the BTC business, Cash App segment gross profit revenue grew by 15% year-over-year, accelerating from last quarter's 12%. The gross margin was 83.4%, continuing to rise slightly by 0.1 percentage points sequentially.

However, from the perspective of expectation difference, Bloomberg's sell-side consensus expectations were somewhat low, with expected gross margin at only 81.3%, flat year-over-year but significantly narrowing sequentially.

IV. Expenses Rise but Remain Below Gross Profit Growth, Profit Significantly Improves

In terms of expenses, total spending for the quarter was about $480 million, up 6.5% year-over-year, slightly accelerating and slightly more than the expected $467 million. Specifically, this quarter saw a $290 million credit loss provision, significantly higher than the usual $170-$190 million.

Other regular three expenses actually saw a year-over-year growth rate decline compared to last quarter.

Overall, due to expenses growing slower than revenue and gross profit, the GAAP operating profit as a percentage of gross profit was 19.1%, a significant sequential increase of 4.8 percentage points. Ultimately achieving an operating profit of $480 million. The adjusted figure was $550 million, $100 million more than market expectations. (Although the absolute difference is not large, the proportion is 20% higher than expected)