Block's Q3 gross profit rose to USD 3.24 billion, but the company is still required to pay a USD 960 million settlement fee.

Written by Nicky, Foresight News

According to Block's third-quarter earnings report released on November 4, the company's gross profit grew 22%! to (MISSING) USD 3.24 billion, outpacing analysts' average expectation of USD 3.1 billion. The company raised its full-year 2026 gross profit guidance from approximately USD 12.5 billion to around USD 12.6 billion, marking the third consecutive upward revision of its outlook.

Following the earnings release, market data from Bitget showed Block's stock price rose as much as 9%! in after-hours trading, (MISSING) reaching a high of USD 83.45. On the first full trading day post-earnings, the stock opened 15.3%! higher, (MISSING) closing at USD 87.63, with a market capitalization of approximately USD 52.974 billion.

Analysts maintain a consensus rating of "Moderate Buy", with an average price target ranging from USD 95 to USD 98. Bank of Montreal, Canada's oldest bank founded in 1817, upgraded its rating on Block to "Outperform" after the earnings release, with a price target of USD 100. Morgan Stanley, which had previously flagged concerns around lending credit risk, downgraded its rating to "Neutral" with a price target of USD 80.

Two Core Ecosystems: Synchronized Growth for Cash App and Square

From a business structure perspective, Block's growth is jointly driven by its consumer-facing Cash App segment and merchant-facing Square segment.

Cash App generated USD 2.07 billion in Q3 gross profit, up 27%! year-over-year. (MISSING) According to company disclosures, monthly transacting active users reached 60 million in September, a 4%! year-over-year increase, (MISSING) reversing the stagnation seen in the prior several quarters.

The core feature driving this growth is Neighborhoods, Block's local merchant discovery and member cashback transaction network embedded within Cash App, which connects Square merchants with Cash App users. To date, over 30,000 Square merchants have been automatically onboarded to the network, with participating merchants generating approximately USD 5 billion in annualized total payment volume, a nearly 5x increase from June levels.

Consumer loan origination volume reached USD 19 billion, up 40%! year-over-year, (MISSING) with Afterpay's buy-now-pay-later origination volume growing more than 3x year-over-year. On the product front, Cash App launched a Spanish language version, upgraded family account features, the "Earn in P2P" pilot program, and the Cash App Tags hardware product this quarter. One in five of the product's subscribers are new or reactivated users.

Square generated USD 1.16 billion in Q3 gross profit, up 14%! year-over-year. (MISSING) Total payment volume reached USD 76.4 billion, a 14%! year-over-year increase, (MISSING) marking the fastest growth rate since Q1 2023. Growth was driven by a 10.4%! increase in the U.S. market, (MISSING) and a 26%! increase in international markets. (MISSING) The number of self-onboarded new merchants hit its highest level in more than a decade, with new merchants from ISO (Independent Sales Organization) partners growing 90%! quarter-over-quarter. (MISSING) On the product side, Square launched Square Kiosk, a voice AI self-ordering device, rolled out its AI tool Squaremates across the U.S. market, and released more than 180 new features in the first three quarters of the year.

Bitcoin Business Gross Profit Halved, AI Revenue Monetization Imminent

The Bitcoin-related business generated USD 1.8 billion in Q3 revenue, but gross profit was only USD 52 million, down 50%! year-over-year. (MISSING) Block explained that this drop was primarily driven by a strategic reduction of Bitcoin transaction fees on some Cash App services, as the company positions Bitcoin as a customer acquisition and expansion tool rather than a profit center.

On November 4, data from Bitcoin Treasuries showed that Block added 120 BTC to its holdings in Q3, bringing its total Bitcoin holdings to 9,237 BTC, ranking 14th on the platform's "Bitcoin 100" list of largest corporate Bitcoin holders.

On the AI front, Owen Jennings, Block's head of business, stated on the earnings call that Block expects to generate direct revenue from its AI tools for the first time in Q4, and that AI investments will drive future growth. To date, AI tools have been fully deployed across internal operations, including model routing systems, automated code review, and the collaboration tool Buzz. Builderlab, the company's AI product for external customers, began its pilot in October, and is expected to generate first machine intelligence-related revenue in Q4.

The company also disclosed a key regulatory development alongside its earnings report.

Block stated that it has reached a principle-based agreement with the U.S. Department of Justice (DOJ) regarding a multi-year anti-money laundering (AML) investigation. The settlement will be structured as a deferred prosecution agreement (DPA), under which the DOJ will defer related criminal charges for 3 years. The charges will be eligible for permanent dismissal if Block fulfills its obligations of operational remediation and cooperation with regulatory oversight.

The total settlement amount is approximately USD 964 million, with net payment of around USD 764 million after accounting for credits from prior related regulatory settlements. As of September 30, Block had accrued USD 764 million in provisions for this settlement, having previously recorded USD 240 million and USD 526 million in provisions at the end of March and June respectively. The agreement is still subject to final drafting and court approval, and the company noted that final terms may result in losses exceeding the amount of provisions already set aside.

The investigation originated from a March 2023 report by short-seller Hindenburg Research, which alleged that Cash App had inflated user counts, and maintained weak anti-money laundering and know-your-customer (KYC) controls. The U.S. Securities and Exchange Commission (SEC) concluded its investigation into the matter in March 2026 without recommending enforcement action, while the DOJ continued its probe. Previously, Block had reached a USD 40 million settlement with the New York State Department of Financial Services (NYDFS), and an aggregate USD 80 million settlement with multiple state regulators on related matters.

The Other Side of Margin Expansion: Layoffs and Lending Losses

Adjusted operating profit reached USD 923 million, up 92%! year-over-year, (MISSING) with a 29%! operating margin, (MISSING) setting a new all-time record. Adjusted diluted earnings per share (EPS) reached USD 1.13, up 109%! year-over-year. (MISSING) The significant margin expansion was partially driven by the more than 40%! workforce reduction announced in early 2026. (MISSING) According to company disclosures, the layoff plan is largely complete, with expected annualized net cost savings of USD 800 to 900 million, a portion of which will be reinvested in AI and growth initiatives.

In addition, the expansion of lending services has brought new cost pressures. Q3 losses from transactions, loans, and consumer receivables reached approximately USD 602 million, directly correlated with the growth of the company's lending scale. This is one of the key risk points flagged by institutions such as Morgan Stanley. Furthermore, primary banking active accounts dropped approximately 13%! to (MISSING) 9.4 million, a shift likely tied to tightened compliance requirements and stricter user screening.

Full-Year Guidance and 2027 Outlook

Block raised its full-year 2026 gross profit guidance to USD 12.626 billion, up 22%! year-over-year; (MISSING) adjusted operating profit guidance to USD 3.519 billion, representing a 28%! operating margin, (MISSING) up 69%! year-over-year; (MISSING) adjusted diluted EPS guidance to USD 4.15, up 75%! year-over-year. (MISSING)

Q4 guidance includes gross profit of USD 3.315 billion, up 15%! year-over-year; (MISSING) adjusted operating profit of approximately USD 1.005 billion, representing a 30%! operating margin; (MISSING) adjusted EPS of USD 1.15.

The company also provided its initial 2027 outlook: gross profit growth of at least 15%! to (MISSING) approximately USD 14.5 billion, adjusted operating profit of USD 4.575 billion, up 30%! year-over-year, (MISSING) representing an operating margin of around 32%!. (MISSING) Block expects its 2026 Rule of 40 metric to reach 50%!. (MISSING)

In the shareholder letter, Jack Dorsey described Block's current stage as a transition from traditional financial products to "on-demand streaming intelligence", and outlined four core principles: customers value peace of mind over a larger number of products; the speed of a company is determined by its information flow; the best way to integrate machine intelligence is to embody it; intelligence relies on signals, and money is the most honest signal. He also positioned Bitcoin and stablecoins as enabling tools for Cash App's expansion, rather than a pure source of transaction profit.