Block (SQ) Q2 2025 earnings review
Back on Offense: Growth Reaccelerates and Guidance Raised as Lending & Square Initiatives Fire
Block delivered a strong Q2, with gross profit growth rebounding to 14% YoY from a 9% trough in Q1, decisively beating expectations. The reacceleration was broad-based, with both Cash App (+16%) and Square (+11%) showing renewed momentum. Confident in its execution, management raised its full-year guidance for both gross profit (to $10.17B) and adjusted operating income (to $2.03B). The growth is increasingly powered by the rapid scaling of lending products like Cash App Borrow and BNPL, alongside tangible results from Square's revamped go-to-market strategy.
🐂 Bull Case
The rebound from 9% to 14% YoY gross profit growth validates the narrative that Q1 was a trough. Guidance for 16% in Q3 and an exit rate of 19% in Q4 points to a sustained upward trend.
Management raised full-year guidance for gross profit by over $200M and for adjusted operating income by $130M, signaling strong conviction in the second-half outlook.
Cash App Borrow hit an $18B annualized origination run-rate, and the new post-purchase BNPL feature on Cash App Card has quickly scaled to over 1 million monthly actives since its March launch.
🐻 Bear Case
Cash App's monthly active user base remains flat at 57 million for the fifth consecutive quarter, indicating a lack of top-of-funnel growth for its primary ecosystem.
The rapid expansion in lending is driving higher losses, with transaction and loan loss provisions jumping 53% YoY. The sustainability of this growth depends on disciplined underwriting.
Adjusted Free Cash Flow turned negative (-$193M) due to an accounting change that moved 'Borrow' loan originations to investing activities, making it harder to assess the core business's cash generation.
⚖️ Verdict: 🟢
Bullish. The confirmed reacceleration in growth and the significant guidance raise are powerful positive signals. While stagnant user growth at Cash App is a valid concern, the company is successfully deepening monetization with existing users. The lending-driven growth appears well-managed for now, and the turnaround at Square is gaining tangible traction. The positive momentum outweighs the current risks.
Key Themes
Lending Products Become the Primary Growth Engine
Cash App's growth is increasingly powered by its lending portfolio. 'Borrow' originations hit an $18 billion annualized run-rate, driven by an expansion of the program through Block's own bank (SFS). The newer post-purchase BNPL feature on Cash App Card has rapidly scaled to over 1 million monthly actives and a $2 billion originations run-rate since its March launch. These products are central to the company's H2 acceleration forecast.
Square's Turnaround Gains Traction
Square's strategic overhaul is yielding clear results. Gross Profit growth accelerated to 11% YoY, and GPV growth hit 10%, with notable strength in key verticals like Food & Beverage (+15% YoY) and Retail (+10% YoY). The company is successfully moving upmarket, signing multi-location sellers like Colectivo Coffee and Shane’s Rib Shack, validating its investments in product and a revamped sales motion led by Afterpay's founder.
Cash App's User Base Growth Remains Stagnant
A key concern remains the lack of top-of-funnel growth for Cash App, a direct contradiction to the narrative of network expansion. Monthly Transacting Actives have been flat at 57 million for five consecutive quarters. While monetization per user is growing robustly (+15% YoY), the network itself is not expanding. The recent launch of 'Pools', a group P2P product, is management's latest attempt to reinvigorate virality and user growth.
Rising Credit Risk & Investment Drag on Margins
The rapid expansion in lending comes with heightened risk. Transaction, loan, and consumer receivable losses jumped 53% YoY to $294 million. Furthermore, the investment in this growth, combined with go-to-market spend, is expected to pressure near-term profitability. Management guided Q3's Adjusted OI margin to 18%, a sequential dip from 22% in Q2, explicitly citing risk loss growth and GTM investment timing.
Increased 'Shipping Velocity' and AI Integration
CEO Jack Dorsey emphasized a significant increase in product 'shipping velocity.' The launch of 'Pools' on Cash App, from ideation to pilot in just four months, was cited as a key example. This is enabled by a greater use of technology, including an internal AI agent codenamed 'goose' that is accelerating development, and the external rollout of 'Square AI' to help sellers analyze their business.
Other KPIs
Profitability continues to trend positively, with the Adjusted OI margin expanding to a record 22% in Q2, up from 18% a year ago and 20% last quarter. The company raised its full-year margin target to 20%, implying over 2 points of YoY expansion while still funding aggressive growth investments. This demonstrates strong operating leverage and cost discipline.
Stable. The metric swung negative from +$493M a year ago, but this is not due to operational weakness. The change is driven by an accounting shift: 'Borrow' loans are now originated via Block's bank (SFS) and classified as 'held-for-investment', moving them from Operating Cash Flow to Investing Cash Flow. This accounting change masks the underlying cash generation of the business.
The company repurchased 12.5 million shares for $692 million in the quarter. As of quarter-end, $1.5 billion remained on the authorization, demonstrating a continued commitment to returning capital to shareholders, supported by growing profitability.
Guidance
Accelerating. The raised guidance implies 14.4% YoY growth for the full year, an increase from the ~12% growth outlook provided last quarter. This reflects management's confidence in sustaining momentum through the second half of the year.
Accelerating. The guidance implies 16% YoY growth, a further acceleration from the 14% growth delivered in Q2. The implied Q4 growth rate is even higher at 19%, suggesting a strong finish to the year.
Stable/Improving. This represents a $130 million raise from the prior outlook. A full-year 20% margin implies over 2 percentage points of YoY margin expansion, demonstrating a commitment to profitable growth.
Decelerating Sequentially. Management guided to a temporary dip in margins for Q3, down from 22% in Q2. This is attributed to the timing of GTM investments and higher anticipated risk losses as the 'Borrow' loan product continues to scale rapidly.
Key Questions
Sustainability of Lending-Driven Growth
With loan losses up 53% YoY and Borrow now being the primary growth driver, can you provide more detail on the underlying loss rates for the portfolio and the key metrics you're watching to ensure credit quality isn't being sacrificed for growth?
Path to Reinvigorating User Growth
Cash App actives have been flat for five quarters. Beyond 'Pools', what are the top 2-3 specific initiatives or marketing strategies you believe can restart net active user growth in 2026, and is it still a primary KPI for the segment?
Underlying Free Cash Flow Generation
The accounting shift for 'Borrow' loans makes Adjusted FCF difficult to interpret. Can you provide a pro-forma view of what cash flow from operations would have been this quarter without this change, to help us better understand the core cash-generating power of the business?
Square's Profitability vs. Growth
Square's gross profit growth accelerated to 11% while GPV grew 10%, indicating a positive spread. How should we think about the balance between pricing actions, product attach rates, and go-to-market investments in driving Square's profitability in the second half?