Block (Minutes): Growth is expected to accelerate continuously in the second half of the year, but there is slight pressure on profit margins.

Block (Minutes):

The following are the minutes of Block's Q2 2025 earnings call, compiled by Dolphin Research. For earnings interpretation, please refer to Block: Riding the Stablecoin Wind, Finally Bottoming Out?

I. Review of Core Financial Information

1. Performance Review:

Cash App Business: Second-quarter gross profit growth re-accelerated to a year-over-year increase of 16%. The Cash App Card achieved healthy scaled gross profit growth. BNPL (Buy Now, Pay Later) gross profit re-accelerated, with post-purchase BNPL on the Cash App Card surpassing 1 million monthly active users in July.

Square Business: Second-quarter annualized GPV (Gross Payment Volume) growth accelerated to 10%. Gross profit grew by 11%. GPV in the restaurant sector grew by 15%, and retail GPV grew by 10%. International GPV growth accelerated to a year-over-year increase of 25%.

Lending Business (Borrow): Starting in the second quarter, there was a significant increase, with the company's bank SFS now underwriting most of the loans, and plans to further expand SFS's underwriting scope in the second half of the year. The annualized loan amount reached $18 billion.

2. Key Data and Highlights:

▪ P2P transaction volume over the past 12 months reached $218 billion.

▪ In June, 8 million active users deposited checks or spent at least $500 through Cash App.

▪ Millions of active users traded $58 billion worth of Bitcoin.

▪ In June, there were 5 million sponsored teen active users, with 1.7 million graduating to personal Cash App accounts.

▪ The Square field sales team's recent sales group's return on investment period is estimated to be 5 to 6 quarters.

▪ The second quarter saw a record high in new transaction volume, marking the strongest quarterly growth in new transaction volume since Q3 2021.

▪ The company was honored to be included in the S&P 500 index this quarter.

3. 2025 Financial Guidance:

(1) Third Quarter Guidance:

▪ Expected gross profit of $2.6 billion, a year-over-year increase of 16%.

▪ Expected adjusted operating income of $460 million, with a profit margin of 18%.

▪ The lower profit margin in the third quarter is mainly due to increased risk losses from expanding the lending business and the timing of marketing plans.

▪ Square business is expected to achieve low double-digit GPV growth in the third and fourth quarters.

▪ Square's third-quarter gross profit is expected to be in the high single-digit growth range.

(2) Full-Year Guidance:

▪ Raised full-year gross profit guidance, expected to reach $10.17 billion, a year-over-year increase of over 14%.

▪ Raised full-year adjusted operating income guidance, expected to reach $2.03 billion, with a profit margin of 20%. Despite significant marketing investments for business development, the profit margin still increased by two percentage points year-over-year.

▪ By the end of the year, gross profit growth is expected to reach 19%, and adjusted operating income profit margin is expected to exceed 20%, laying a solid foundation for 2026.

▪ Personnel adjustment plan: The company plans to continue actively increasing sales personnel to further expand Square's distribution footprint while committing to keeping the employee count below 12,000.

4. Business Advancement Pace:

1) Cash App:

▪ Product Innovation and Expansion: In the second quarter, Bitcoin payment functionality was launched on Square, tax payment functionality was introduced for Cash App merchants driven by Square, and an AI-driven customer support agent, CashBot, was launched.

In the U.S., the "Pay Monthly" feature for Afterpay single payments was launched, new features were provided for sponsored accounts, a more personalized offer platform was introduced, and Cash App Polls were quickly moved from development to pilot phase.

▪ Deepening Lending Business: Exploring more ways to deepen engagement, including offering higher borrowing limits for active check deposit users.

▪ Teen User Stickiness: Cash App has strong stickiness with sponsored teen active users, with nearly 80% attachment rate to Cash App Card and over 25% attachment rate to Cash App Pay.

2) Square:

▪ Product Enhancement and Market Expansion: In the second quarter, Square AI, Square Handheld, and an updated version of Square Online were launched. The company is focused on winning the Quick Service Restaurant (QSR) market and has successfully won clients like Colectivo Coffee, Shane's Rib Shack, and Ben's Soft Pretzels.

▪ Sales and Partnerships: Continued strong performance from the field sales team. Early progress is being seen in ISO (Independent Sales Organization) investments, with plans to further expand this distribution channel in the coming quarters.

II. Detailed Content of the Earnings Call

2.1 Core Information from Executive Statements

1. Technology Investment:

The company is accelerating the delivery of AI capabilities to customers, launching Square AI and the AI-driven customer support agent CashBot.

2. Product Expansion:

Expanding the use of Cash App Borrow, expanding Afterpay integration, and promoting the Cash App Card as a gateway to banking services. Strengthening Square's partnerships and field sales strategy.

3. Personnel Adjustment Plan:

The company plans to continue actively increasing Square sales personnel to further expand distribution footprint. Committed to achieving orderly growth and cost efficiency, keeping the employee count below 12,000.

4. Long-term Goals:

By the end of the year, gross profit growth and adjusted operating income profit margin are expected to lay a solid foundation for 2026.

The company will host an "Investor Day" event on November 19 to share more information about the long-term roadmap.

2.2 Q&A

Q: Jack, you mentioned the company is accelerating product release speed. Compared to the last conversation, in which areas is your company more confident?

A: Our confidence mainly stems from the significant improvement in product release speed. The recently launched Pools feature (group-to-group payment functionality) is the best example, with the team achieving from concept to release in three months, supporting offline use and donations from non-Cash App users via Apple Pay or Google Pay.

This directly drove network growth and viral spread, reinforcing Cash App's inherent network effects. We are currently leveraging AI coding tools (such as Goose) to accelerate development and design, conducting experiments at near-zero cost to quickly obtain customer feedback, thereby achieving a qualitative leap in product innovation and iteration speed.

Q: You mentioned increased guidance confidence and key drivers for accelerated growth in the second half. Can you elaborate on these drivers?

A: Confidence comes from healthy growth signs in the second quarter. Expectations for increased gross profit and operating income in the second half, with guidance requiring a sequential acceleration of two percentage points in the third quarter and three percentage points in the fourth quarter.

Primarily based on four key drivers: First, strong Borrow business, with 6 million monthly active users, expanding eligibility and increasing limits, SFS bank migration enhances unit economics. Second, excellent performance of new Cash App products, with BNPL functionality within Cash App Card (Afterpay's first integration) surpassing 1 million active users by July, outperforming Borrow; third, Proto (Bitcoin wallet and mining-related features) is expected to contribute to gross profit growth in the second half. Finally, Square business acceleration, with GPV growth expected to be faster by the end of the fourth quarter, contributing to long-term gross profit growth.

Q: Cash Card's built-in BNPL is seen as a potential growth driver for 2026 and beyond. Can you elaborate on its attachment rate and other quantitative information about future opportunities?

A: Cash Card's built-in BNPL was launched in March and is a key growth driver for both Cash App and the BNPL platform. Second-quarter BNPL gross merchandise volume (GMV) grew by 18% year-over-year (constant currency), with gross profit growing by 22% year-over-year.

The early performance of built-in BNPL is strong, with high conversion and adoption rates, surpassing 1 million active users by July, and annual loan volume exceeding $2 billion. We draw on Borrow's experience, leveraging Cash App's credit scoring infrastructure, and this product has surpassed Borrow in terms of loan volume and profit margin.

Looking ahead to 2026, in addition to BNPL, traditional Cash App payment integration, Cash App Pay, and Tap to Pay will continue to accelerate, with Borrow remaining a growth driver.

Q: Your company disclosed a new metric of 8 million "bank active users." Can you explain the definition of this metric, its growth, and its impact on Cash App's gross profit?

A: "Bank active users" are defined as direct deposit users or those who spend over $500 monthly on Cash App, with this group growing by 16% year-over-year. As of July, direct deposit active users exceeded 2.8 million. The $500 spending threshold reflects users who use the Cash App Card as their primary payment method, as the average monthly debit card spending in the U.S. is about $900.

These users are highly engaged, with annualized gross profit per active user exceeding $250 in the second quarter, three times the comprehensive ARPU of Cash App, with an average of over 40 transactions in June. We are testing higher Borrow limits for direct deposit users and expanding banking benefits based on the spending threshold to enhance platform awareness and incentives.

Q: Last year, Square increased sales investment and launched new products. How have these investments paid off, and have they reached the expected scale?

A: We are very pleased with the early results of our marketing strategy, reaching a broader merchant group with significant market share growth. The growth rate of new transaction volume exceeded 20% in the first half, and we expect it to more than double in the fourth quarter due to the expansion of the sales team (field sales and telesales).

The LTV to CAC ratio of the field sales model is strong, with a payback period of 5 to 6 quarters. We are confident in continuing to invest in the expansion of the sales team, with extremely high marginal returns. The partner model also performed well, with partner-driven leads exceeding expectations in the second quarter.

International markets performed strongly, with GPV growth of 25% and gross profit growth of 19% in the second quarter. The self-onboarding model also maintained strong transaction volume, unaffected by sales investment.

Q: The gap between Square's gross profit growth and GPV growth has narrowed. Can you explain the factors leading to this change and the expected long-term trends for these two growth rates?

A: This gap reflects some subtle dynamics recently and does not represent the underlying strength of the business. We focus on sustainable GPV compound growth, which will ultimately accumulate to gross profit growth.

Recent influencing factors include: First, adjustments to processing partnerships to enhance operational flexibility, leading to a moderate increase in processing costs, causing about two percentage points of gross profit growth resistance in the second quarter, expected to continue in the third quarter, but will be eliminated by 2026.

Second, strong adoption of new hardware (such as handheld devices) also increased hardware costs, but this is an effective way to acquire new customers. We expect gross profit and GPV growth to be roughly aligned by the end of the year, with long-term growth driven by cross-selling more products.

Q: Cash App user growth seems to have stalled in recent quarters. Besides focusing on network density and targeting the family and teen markets, what other measures does your company plan to take to increase Cash App's network and user numbers?

A: We are delving into existing and future customer groups, aiming to create a money app for the next generation, which is a huge untapped opportunity. Cash App naturally attracts younger demographics. Through products like Pools, we address the need for group money management, as 60% of adults in the U.S. pool money for specific purposes.

Pools allow non-Cash App users to participate via Apple Pay or Google Pay, experiencing the utility of Cash App and registering. This reflects our approach to attracting customers through product features and super-creative marketing. We are leveraging technology, focus, and restructuring to accelerate product releases like never before, providing more cool products that resonate through rapid experimentation.

Q: Can you comment on the progress of the Bitcoin mining project (Proto) and recent transactions surrounding Cold Reef and Coal Scientific?

A: Regarding Proto and the mining project, news will be forthcoming, possibly as soon as next week. We believe we have created the best miner on the market, which is the most flexible, customizable, and entirely built based on online customer feedback.

We expect to expand market share in the mining sector and capture a significant portion of the market. Additionally, the recent launch of new products, such as Cash App Pools and Tap to Pay functionality for Cash App Business, along with innovative marketing campaigns, demonstrate that execution speed is accelerating. These new initiatives show very encouraging early signs, although not fully reflected in the second-quarter results, they have become a source of confidence for our increased guidance for the second half.

Q: How will the Borrow business evolve as it grows, and can you discuss its gross margin situation and quantify the pros and cons of increased losses?

A: The Borrow business performed strongly in the second quarter, with annualized loan volume nearly doubling to $18 billion, and 6 million monthly active users in June. We expect this strong momentum to continue as SFS underwriting expands to more states.

An important metric for measuring product success is the annualized net margin (ANM), which reached 24% in the second quarter, consistently stable in the mid-20% range, above our 20% threshold. Borrow is not only a standalone product but also a key engagement tool in Cash App's banking strategy. We leverage Cash App's internal custom credit scoring mechanism, integrating customer data to guide underwriting, approving 38% more customers than comparable VantageScore at the same loss threshold, serving those excluded by traditional finance. Loss rates remain at 3% or lower, with strong unit economics.

Q: Please share early observations on the new hardware (especially handheld devices) and the launch of Square AI, and their impact on market potential customer expansion, win rates, or retention rates.

A: We are confident in the handheld Square device, which is the best form factor to date, super portable, affordable, and extremely durable, capable of expanding to various business types. It has been launched in the U.S. and is being promoted internationally, serving as an important driver for sales and winning new customers.

Square AI is becoming increasingly sophisticated, designed to act as a virtual COO, helping businesses of all sizes manage operations and presenting the entire Square ecosystem in a simpler, more intuitive way. Additionally, the recent enablement of Bitcoin payments on Square is significant, and Square will support major stablecoins like Tether and Circle, ensuring sellers can accept all payment methods to complete sales.

Q: Given your company's historical focus on Bitcoin, can you elaborate on your philosophical view of stablecoins and their greatest use in the broader stablecoin ecosystem, as well as your company's role?

A: Our stance is that if people want to use stablecoins for purchases, transactions, or transfers, Cash App and Square will support it. We will focus on the most commonly used stablecoins. Although we have our own bank that can provide stablecoins, it is currently unnecessary because many stablecoins lack differentiation, and the advantages offered by Bitcoin surpass them.

Bitcoin is new and unique, having proven its status as a store of value over 16 years. Stablecoins are currently mainly used for remittances. Our goal is to make Bitcoin the native currency of the internet and everyday currency, and its independence from specific companies or governments will greatly accelerate our business expansion in global markets. This is a long but confident path of protocol development.

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