Plummeting 15%, North America's Alipay Block 'not guilty of this'

US payment niche leader-$Block(XYZ.US) released its Q3 2025 financial report after the US stock market closed on November 7. Overall, the performance this season was not bad. The core revenue excluding Bitcoin trading business and adjusted net profit both exceeded expectations. The guidance for the next quarter also basically met expectations. There were no significant flaws in the performance, and the sharp drop in stock price was more due to macro market reasons. The key points are as follows:

1. Core revenue and profit slightly exceeded expectations: This quarter, Block's core revenue excluding Bitcoin increased by 17% year-on-year, accelerating by 7 percentage points from the previous quarter, better than expected. In terms of profitability, the company's disclosed adjusted operating profit was $480 million, an 8% year-on-year increase, also slightly better than expected. The issue is that the profit growth rate narrowed compared to the revenue growth rate, failing to leverage operational efficiency.

2. Square business accelerated growth, operational leverage not reflected: The core metric Square GPV grew by 12% year-on-year this quarter, continuing to accelerate by 2 percentage points from the previous quarter, showing good growth momentum. Among them, overseas regions were the main driving factor, with GPV growth as high as 26%, accounting for 21% of the total. The US market, although with a lower absolute growth rate of 9%, also accelerated sequentially (1.9 percentage points).

However, due to changes in revenue structure (increasing proportion of overseas and large merchants), the payment monetization rate continued to decline (down 0.02 percentage points sequentially), resulting in core financial metrics—gross profit increased by about 9% year-on-year, lagging behind GPV growth, failing to reflect the operational leverage effect.

3. Cash App growth stronger: This quarter, the growth of the Cash App segment was even stronger, with revenue and gross profit growth both exceeding 20%, significantly accelerating from the previous quarter, far exceeding market expectations, and the gross profit growth rate was higher than revenue growth.

Not only were the financial metrics good, but this quarter, Cash App's monthly active users finally broke through to 58 million after six months of stagnation. The indicator reflecting user stickiness—per capita fund inflow increased by 10% year-on-year, also accelerating.

The continuous acceleration of Cash App's revenue and gross profit growth was mainly due to the incremental contribution of credit and buy now, pay later, two relatively new monetization methods. Reflected in financial metrics, this quarter, Cash App's monetization rate accelerated by 21 basis points year-on-year, reaching a new high in recent years.

4. Customer acquisition expenses expanded, dragging down profit performance: Overall, Block's performance in growth this quarter can be said to be quite outstanding. The main issue was the expansion of expense spending, with total operating expenses increasing by nearly 17% year-on-year, much higher than before. Specifically, it was the impact of customer acquisition expenses increasing by 17% year-on-year, and bad debt losses increasing by nearly 90% year-on-year (due to the rapid growth of the credit business, and the recent trend of rising consumer bad debt rates in the US).

Dolphin Research View:

Summarizing the above, it can be seen that Block's performance this quarter was actually good. Both the Square and Cash App segments showed positive trends in financial and business metrics, generally exceeding expectations. The only issue was the high expense investment, leading to profit growth lagging behind business and revenue growth, failing to reflect operational leverage.

For the next quarter's guidance, the company expects gross profit to grow by 19% year-on-year, slightly accelerating from this quarter. At the same time, guidance for next quarter's adjusted operating profit is $560 million, with profit margins continuing to expand, basically in line with market expectations.

Therefore, the guidance for the next quarter also indicates stable upward growth, with good profit growth. Whether looking at the current quarter or the next quarter's guidance, it does not justify a 15% plunge in performance. Dolphin can only say it is more due to the overall market decline.

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 also a major positive logic for the company. However, with the recent cooling of the cryptocurrency market and the decline of the stablecoin craze, the market is no longer as focused on this story.

However, on the business level, with the internationalization and upward upgrade of the Square segment, growth is stabilizing. The Cash App segment, with a better user ecosystem and the advancement of credit cards, BNPL, and consumer loans, can bring considerable revenue and high-profit incremental contributions. Business-wise, the company's situation is positive.

With this sharp drop, the corresponding adjusted operating profit for 2025 (guidance $2.06 billion) is approximately equivalent to 17.8x. Assuming a 20% profit growth next year, the corresponding valuation is 14x. Of course, on a post-tax basis, it should be multiplied by about 1.3. Overall, it belongs to the average valuation level of traditional payment financial institutions.

From the perspective of matching valuation with business growth potential, the current position is still acceptable. The main issue is the company's historically unstable performance, and the market does not have much faith in the company. There may be significant fluctuations in performance and stock price.

Below are the key charts:

I. Square Segment