Block (Minutes): Bitcoin payment feature to be launched soon

The following is compiled by Dolphin Research$Block(XYZ.US) for the 2025Q3 earnings call minutes. For earnings interpretation, please refer to "Plunge 15%, North America's Alipay Block 'Not Guilty of This'"

I. Review of Core Financial Data

Full-year expectations: Q4 2025 gross profit is expected to grow over 19% year-on-year to $2.755 billion; adjusted operating profit for Q4 is expected to be $560 million, with an operating margin of 20%; full-year gross profit is expected to be $10.243 billion (+15%);

Full-year adjusted operating profit is expected to be $2.056 billion (+28%).

Stock Repurchase: By the end of September, the company had repurchased approximately $1.5 billion in stock.

Tax Rate and Interest Expense: The long-term tax rate is expected to remain in the mid-20% range; Q4 net interest expense is expected to be $45 million.

II. Detailed Information from the Earnings Call

1. Cash App Growth Strategy and Effectiveness

User growth strategy: Focus on reigniting active user growth by optimizing the entire user experience, including new user guidance, recommendation mechanisms, and core payment processes, to enhance engagement and retention.

Lending business expansion: By expanding into new state markets and optimizing underwriting processes, the "Borrow" service is extended to more users while maintaining a stable risk loss rate and a strong annualized net interest margin of 24%.

2. Square Merchant Platform Strategy and Products

Three strategies: Merchant and consumer connection: Utilizing blockchain technology, connect merchants with the network of 58 million monthly active users through Cash App community features and offer customized local reward programs.

AI tools automation: Launch the Square AI platform, integrating smart assistants into merchant tools to help quickly gain business insights, and introduce AI-driven order management tools.

Simplifying sales processes: Provide merchants with vertically integrated software and hardware solutions to simplify sales processes. Introduce new products such as multi-channel menu management and unified delivery application management, increasing order processing speed by 30%.

Market Expansion Progress: New transaction volume (NVA) shows a turning point. High-end market (sellers with GPV over $500,000) GPV grew 20% year-on-year. International market GPV grew 26% year-on-year.

3. Future Outlook

Product roadmap: Announced that Square release mode will be launched on Cash App on November 13, showcasing the development roadmap and exploring the future of AI and Cash App.

Long-term goals: Expected to approach the "40% rule" as we enter 2026. Investor Day will elaborate on the financial outlook for 2026 and the long term.

Management emphasized: Improved delivery speed and enhanced customer value creation capability are the core drivers of continuous performance improvement.

4. Other Business and Financial Highlights

Proto Bitcoin business: Bitcoin mining business Proto begins revenue generation and sells the first batch of mining machines to the first customer, actively advancing sales channels for 2026 and beyond.

Costs and expenses: Transaction, loan, and risk loss expenses grew 89% year-on-year, mainly due to scaled investment in lending products. Adjustments to Square processing costs negatively impacted its gross profit by approximately 2.6 percentage points, which is expected to be eliminated by the second quarter of 2026.

2.2 Q&A Session

Q: What is the current progress on Cash App's growth and network density construction? When can we see a turning point in growth?

A: We are pleased with the performance of reaching 58 million monthly active users in September, and growth has been accelerating since we prioritized it, maintaining momentum in October. We drive growth through two core parts: acquiring new users and enhancing user engagement, converting low-frequency users into higher-frequency users.

We focus on optimizing core processes to make transactions simpler and invest in social features like "multi-person payment," such as the "Pools" feature, which created 1.5 million by the end of October.

Additionally, we continue to invest in the teen and family business, with 5 million monthly active teen accounts, and have just launched a high-yield savings product for them. In marketing and product development, we focus on high quality and efficiency. All our product investments will continue to drive user engagement, reflected in September's inflow of funds per active user growing 10% year-on-year, and gross profit per active user growing 25% year-on-year. We still have tremendous opportunities ahead.

Q: Can you provide more information on the productivity of the sales team and their contribution to GPV and gross profit?

A: Our market promotion strategy, especially field sales, has performed exceptionally well. We have seen strong returns on investment, and the marginal return on incremental manpower investment continues to grow well. We have ample room to continue investing.

As of September, sales-driven new transaction volume grew 28%, and is expected to grow over 40% in the fourth quarter. We have significantly expanded the team size, from almost no field sales personnel at the beginning of the year to now over 100, and are rapidly expanding. While expanding the team, we have seen fairly stable profit margins. Our focus is on maximizing the growth of variable profit dollars. If we can continue investing and see new transaction volume growth each quarter, this will translate into faster GPV growth, ultimately meaning strong gross profit growth.

Q: How is the performance of the self-service onboarding channel?

A: While field sales perform strongly, our self-service onboarding channel also performs excellently. Square maintains very strong organic growth momentum, 70% of our new transaction volume comes from self-service onboarded sellers. This is due to process optimization and investment in AI, currently ranking first in SMB keyword searches related to AI. Our self-service onboarding continues to grow and expand at some of the best growth rates seen on the website and app since 2017, largely due to the continued expansion of marketing scale, driving strong lead flow and return on investment.

Q: How is the overall growth strategy and performance?

A: Our core focus and belief is that the compound growth of GPV will drive gross profit growth, leading to incremental variable profit dollars. We see healthy signs of this growth algorithm across all dimensions, whether it's the strong 17% growth in the dining business, 20% growth in mid-sized and large sellers, or 26% growth in markets outside the U.S., all indicating that our strategy is working.

It should be noted that a decision we made last quarter to improve operational flexibility impacted third-quarter gross profit by about 2.6 percentage points. Without considering this, third-quarter gross profit growth was roughly equivalent to GPV growth, and the fourth quarter is expected to be similar. Our focus is on introducing incremental sellers to our platform through various distribution channels.

Q: What is the value proposition and underwriting advantage of the Borrow lending product?

A: These products provide critical cash flow flexibility for customers overlooked by traditional finance, achieving a strong product-market fit. Our AI and machine learning-based underwriting capabilities are a core advantage. Third-quarter loan issuance volume grew 134% year-on-year, with an annualized scale of $22 billion, and gross profit growth was even higher, but the risk loss rate remained below the 3% target, achieving a 24% annualized net interest margin.

Supporting all this is our internal "Cash App credit score" model, which uses the platform's extensive data to provide real-time insights, allowing us to maintain healthy unit economics while expanding credit access. Borrowing users have much higher engagement than non-borrowing users, with inflow volume three times higher and retention rate three times higher. We are excited about the current strong momentum.

Q: After excluding the contribution of the Borrow business, Cash App's gross profit growth still accelerates to low double digits. What are the main driving factors and sustainability?

A: This is due to the synergy of the entire Cash App ecosystem, which we divide into four key parts: network products (including peer-to-peer payments), banking products (including direct deposits), commercial products, and Bitcoin products. We have made significant progress in product development and marketing in all four areas.

Specifically, network expansion and monthly active user growth continue to contribute; in banking products, direct deposit penetration and growth in major banking activities are key; commercial products are large in scale and growing healthily, Cash App Card's GPV grew 19% year-on-year, Cash App Pay's GPV grew 70% year-on-year; Afterpay business also accelerated growth, with annualized lending volume increasing from $2 billion to $3 billion.

We do not tend to view profits in isolation after excluding Borrow. The Borrow product itself has excellent returns, with a return on invested capital of up to 30%. More importantly, its second-order effects: most of the borrowed funds circulate within the Cash App ecosystem, driving overall engagement.

At the same time, the product has a high market fit among the large population in the U.S. living paycheck to paycheck. In the future, we are trying to use borrowing qualifications and limits as incentives to guide user behavior (such as promoting major banking activities), which brings us great excitement. We believe this diversified product portfolio can jointly drive sustained growth.

Q: How does the company formulate fourth-quarter performance guidance in the current macro environment? What is Square's growth strategy?

A: Our fourth-quarter guidance is mainly based on the strong performance of the third quarter and stable data in October. In the third quarter, multiple key indicators accelerated growth, including Square GPV and Cash App user fund inflows, with healthy returns on investment and credit performance. Although the buy-now-pay-later business was slightly affected by tariffs, its GMV still maintained stable growth of 17%-18%. October data, such as transaction volume, loan issuance volume, and loss rate, remained stable, with no significant changes observed in the macro environment. We will remain data-driven and flexibly adjust marketing and credit strategies as needed.

In terms of Square's market strategy, we have seen strong growth in the self-service onboarding channel and are vigorously expanding the field sales team. Currently, the team operates only in the U.S. market, with ample room for expansion. We use proprietary information such as Cash App card data to assess local market penetration to guide team expansion. We have made significant progress in the high-end market, winning large and complex merchants.

Meanwhile, partnerships (such as with Grubhub and Cisco) have also brought strong seller growth. By coordinating product development, marketing, and sales, we have successfully launched features such as multi-location menu management, enhancing competitiveness, and are expected to enter 2026 with strong momentum.

Q: What is the latest progress and outlook for Square's integration of Bitcoin payments?

A: We will fully launch Bitcoin payment functionality to all sellers next week, allowing sellers to start accepting Bitcoin with a simple switch in settings. Feedback from our existing test merchants indicates that the operation is very simple, and since there are no fees for accepting Bitcoin payments, they are willing to promote it vigorously. Our challenge lies in getting users accustomed to and using Bitcoin for payments, which requires optimizing the payment interface to enhance usability. We are continuously working through Cash App, BitKey, and Spiral teams to promote the application and popularization of Bitcoin payments. We will actively educate sellers on the advantages of accepting Bitcoin and guide buyers to use it.

Q: Is Square's new transaction volume coming from merchants not using cloud solutions or customers of other cloud service providers? What changes are there in the pricing environment?

A: New transaction volume partly comes from users of traditional POS systems, and we have also successfully won back some customers who had turned to direct competitors, with overall win rates performing strongly. There have been no major adjustments in pricing, and the market environment is normal. Our growth is mainly due to the expansion of the field sales team from zero to over 100 people, allowing us to participate in more business opportunities.

International telephone sales channels have also significantly accelerated the growth of new transaction volume. Additionally, we have seen the lowest customer churn rate since the second quarter of 2023, thanks to our investment in the customer management team. In software pricing, we simplified it into three tiers of free, Plus, and Premium earlier this year, reducing total customer costs, increasing attachment rates, and showing advantages in competition.

Q: What are the unique development opportunities and competitive advantages of the Afterpay business?

A: Afterpay's GMV grew 18% at fixed exchange rates, and gross profit grew 23% year-on-year. The main driver of growth is the "Buy Now, Pay Later" feature on the Cash App card, which exceeded expectations in adoption and conversion rates. We achieved an annualized lending scale of $3 billion in early October and plan to continue expanding user eligibility and increasing attachment rates. The expansion speed of this product is significantly faster than the early trajectory of the Borrow business, while the loss rate of consumer receivables is in line with expectations, maintaining a healthy risk level.

We are committed to integrating Afterpay more deeply into Cash App and accelerating the development of its core global business. In recent months, we have signed several new partnerships, including Uber and Amazon (Australian market), as well as Hibbett and Jenny (U.S. market), expanding our commercial network and advertising business. We focus on allowing Afterpay to play a unique role within the Block ecosystem and through synergies with Cash App and Square, while investing in the re-acceleration of its core network growth.

Q: Is AI's impact on Block more focused on cost savings or growth drivers? What are the short-term application scenarios?

A: We believe AI will bring both cost savings and growth drivers. It allows us to grow faster and better monetize our capabilities. For example, in Square and Cash App, AI can proactively recommend features users need based on our understanding of their business or financial situation, without users having to search for them themselves.

In terms of cost, our goal is to automate the company as much as possible, reducing the mundane tasks required to serve customers, allowing the team to focus more on creative work and quickly launching products. The Goose project we started two years ago has proven this, initially used for automating engineering tasks, now expanded to almost all positions in the company, effectively improving efficiency.

We have integrated many of Goose's features directly into Square AI and plan to do the same in Cash App. For sellers, we are committed to creating a "virtual chief operating officer" that can provide proactive advice based on a deep understanding of their business. For Cash App, we are committed to building a "virtual chief financial officer" to help users optimize finances and accumulate wealth.

One unique advantage we have is real-time, live data streams, allowing our models to be trained and adjusted based on real human data, rather than relying solely on internet data. Therefore, AI can more proactively provide recommendations, such as suggesting products or features you might want to try. These applications are currently in the testing phase and have received very positive feedback from users.

Q: What efforts does Cash App need to make in brand recognition or products to attract fund inflows and enhance user commercial consumption?

A: Our core focus is on building a platform that can recognize and support "primary banking behaviors." Our primary banking active user count grew 18% year-on-year to 8.3 million in September, and further accelerated growth to 8.7 million in October, with the year-on-year growth rate increasing to 20%. We are not limited to traditional payroll deposit models but adapt to modern user needs through continuous testing and launching new products.

We have a solid foundation of 58 million monthly active users and 26 million monthly active Cash App card users, providing us with strong cross-selling and attachment rate advantages. Enhancing user engagement is key, as primary banking active users have much higher ARPU (average revenue per user) and LTV (lifetime value) than regular customers. We will comprehensively use higher limits, overdraft protection, rewards, borrowing qualifications, and Afterpay as various levers to create an attractive suite of banking products and drive goals through market activities.

Q: How will Square's product and distribution enhancements affect pricing and profitability? Which segments respond best?

A: We focus on leveraging Block's overall value, combining Cash App's network of 58 million active users and Square's global merchant base, to engage in strategic dialogues with partners. This creates a unique distribution advantage for us. Our competitive advantage lies in being able to act as a growth partner, not only providing POS systems but also driving traffic to sellers through Cash App. It's not just about price and profit; the key is to expand the team size at the right marginal return on investment and ensure team capabilities match the vast market we serve. We are currently seeing very strong new transaction volume growth and expect this momentum to continue accelerating in the fourth quarter.

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