SQ Financial Technology · Payments · Consumer finance · Bitcoin · Thesis updated July 12, 2026

Credit risk is calmer, not gone

Cash App is the growth engine, with gross profit up 38% year over year in Q1 2026.
Square grew gross profit 9% in Q1 2026, and management expects faster growth in the second half.
Cash App Borrow losses look more controlled than feared, with Q1 loss rates falling from 3.16% for new users to 2.67% for users with more than 13 months of history.
The main worry is still credit: loan losses rose 450% year over year in Q1 2026 as Borrow volumes grew.
A workforce cut of more than 40% could lift margins, but it also raises execution and AI reliance risk.

01 Running thesis

Borrow changed the debate

Block is now a cleaner growth story than it looked a quarter ago, but it is not a low-risk one. Cash App gross profit grew 38% year over year in Q1 2026, while Square grew 9%. Management also raised its full-year outlook to 19% gross profit growth and 27% margin.

The biggest update is Cash App Borrow. Earlier filings showed loan losses rising very fast, including a 450% year-over-year jump in Q1 2026. That made it look like Cash App growth might be bought with bad credit risk. On the earnings call, management gave cohort loss rates: 3.16% for new Borrow users, 3.01% for users with 7 to 12 months of history, and 2.67% for users with more than 13 months. That points to underwriting that gets better with customer history.

The bull case is that Block can grow Cash App, re-accelerate Square, and cut costs at the same time. The company has flattened its structure, cut headcount, and is leaning on AI tools to move faster. If credit losses stay stable, that mix can create strong margin growth.

The bear case is no longer that Borrow is clearly broken. It is that lending has become a bigger part of growth right before a possible credit cycle. If unemployment rises or lower-income consumers weaken, stable loss rates could turn quickly, and the Cash App profit story could lose a lot of power.

May 2026▲The Q1 2026 earnings call eased the biggest bear worry. Management gave Cash App Borrow loss rates by customer age, which made the credit story look more controlled than feared.

May 2026▼The Q1 2026 Form 10-Q showed transaction, loan, and consumer receivable losses up 195% year over year, with loan losses up 450%. That keeps credit risk at the center of the debate.

Feb 2026▼The 2025 Form 10-K showed loan losses up 154% for the year and announced a workforce cut of more than 40%. The thesis shifted to whether cost cuts can offset rising credit losses.

Nov 2025▼Q3 2025 showed Cash App growing fast but Square stuck at 9% gross profit growth. Credit losses also accelerated, making growth quality the main issue.

Aug 2025→Q2 2025 growth improved in both Cash App and Square, but transaction, loan, and consumer receivable losses rose 53%. The good growth came with a new credit question.

May 2025▼Q1 2025 showed gross profit growth slowing to 10% for Cash App and 9% for Square. That weakened the earlier high-growth thesis.

Feb 2025▲The 2024 Form 10-K confirmed a major swing to operating profitability. It also made the San Francisco tax dispute more concrete.

Nov 2024▲Q3 2024 supported the cost discipline thesis, with operating income of $323 million versus a $10 million loss a year earlier. Cash App and Square gross profit growth stayed strong.

02 Business model

Two networks, three money streams

Block has two main ecosystems. Square helps sellers take payments, run stores, manage staff, send invoices, borrow money, and use business banking tools. Cash App helps people send money, spend with a debit card, receive direct deposit, borrow small amounts, buy stocks, and buy bitcoin.

The company now groups revenue into three categories. Commerce Enablement includes payments, software, hardware, Cash App Card, Cash App Pay, buy now pay later products, and TIDAL. Financial Solutions includes banking and lending products such as Cash App Borrow, Instant Deposit, and Square Loans. The Bitcoin Ecosystem includes bitcoin buying and selling, plus projects such as Bitkey and Proto.

Bitcoin can make reported revenue look large, but it is a small part of gross profit. Gross profit is the better way to read this company because it strips out much of the pass-through bitcoin volume and payment network costs.

The model works best when users stay inside the network. A seller that uses Square for payments, payroll, loans, and marketing is harder to lose. A Cash App user who receives direct deposit, uses Cash App Card, and borrows through the app is also more valuable. The same linkage creates risk, because a credit or fraud problem can spread across the same system that drives growth.

03 Product portfolio

What Block sells

Cash cow

Square payments and hardware

Square lets sellers accept card payments in person, online, or on mobile devices. Hardware such as readers, terminals, and registers helps anchor sellers in the system.

Steady

Square software

Square offers point-of-sale software, invoices, team tools, payroll, and marketing. These tools can make seller revenue more repeatable than basic card processing.

Growth engine

Square financial services

Square Loans, Instant Transfer, and the Square Debit Card give sellers faster access to money and credit. These products add profit but bring credit and funding risk.

Growth engine

Cash App payments and Cash App Card

Cash App started with peer-to-peer payments and now includes a debit card and direct deposit. The more a user treats Cash App like a bank account, the more ways Block can earn.

Growth engine

Cash App Borrow and investing

Cash App Borrow has become a major driver of Cash App growth. The key question is whether loan losses stay near the disclosed Q1 2026 cohort rates as the product scales.

Option

Afterpay and Cash App Pay

Afterpay adds buy now pay later checkout, while Cash App Pay lets users pay merchants from Cash App. These products try to connect the consumer and seller networks.

Option

Bitcoin, Bitkey, Proto, and TIDAL

Bitcoin trading creates a lot of revenue but little gross profit compared with the main ecosystems. Bitkey, Proto, and TIDAL are smaller bets that are not material to gross profit today.

04 Business segments

Cash App leads gross profit

Cash App66%growing fast

Square34%modest

The mix below uses Q1 2026 gross profit: Cash App at $1.9 billion and Square at $981.5 million. Corporate and Other, including TIDAL and bitcoin projects, is not broken out as a material gross profit segment.

05 Risk factors

What could break the story

Borrow losses jump in a downturn

High impact · Medium odds

Cash App Borrow now helps drive growth, so credit quality matters more than before. Q1 2026 loss rates looked controlled by cohort, from 3.16% for new customers to 2.67% for users with more than 13 months of history. The danger is that a weak economy lifts losses across every cohort at once.

We watchCash App Borrow cohort loss rates, loan loss dollars, delinquencies, and management comments on consumer stress.

Cost cuts hurt execution

High impact · Medium odds

Block announced a workforce reduction plan of more than 40% in February 2026. That can lift margins if the company keeps shipping useful products. It can also remove institutional knowledge and push too much work onto automation and AI tools.

We watchOperating margin, product release pace, outage reports, employee attrition, and signs that AI-driven productivity is not turning into revenue.

Square stays stuck in single digits

Medium impact · Medium odds

Square grew gross profit 9% year over year in Q1 2026. Management expects acceleration in the second half, but competition in seller payments and software is intense. If Square cannot reach double-digit growth, Block becomes more dependent on Cash App lending.

We watchSquare gross profit growth, GPV growth, seller retention, and software attach rates.

Regulators squeeze payments, lending, or crypto

High impact · Medium odds

Block operates across money transmission, banking, consumer lending, securities, buy now pay later, and cryptocurrency. Each area has rules that can change. The San Francisco gross receipts tax dispute also shows that tax treatment of bitcoin-related revenue can create real cash costs.

We watchNew consumer lending rules, crypto enforcement actions, BNPL rules, and updates on the San Francisco tax dispute.

Bitcoin volatility clouds the numbers

Medium impact · High odds

Bitcoin activity can swing reported revenue even though it is a small part of gross profit. That can make headline revenue less useful for judging the business. Crypto regulation and market crashes could also reduce Cash App engagement.

We watchBitcoin gross profit, Cash App bitcoin activity, crypto prices, and any new limits on consumer bitcoin trading.

06 Quick answers

In one breath

Is Block the same company as Square?

Yes. Square changed its corporate name to Block, Inc. The Square brand is still used for seller payments, software, and banking tools.

Why does Block talk so much about gross profit?

Gross profit is a cleaner measure for Block than revenue because bitcoin trading and payment processing can create large pass-through revenue. Gross profit better shows what Block keeps after major direct costs.

What is the biggest risk for Block stock?

The biggest risk is credit. Cash App Borrow is growing fast, and loan losses rose sharply in Q1 2026. Management says underlying loss rates are stable, so investors should watch whether that stays true in weaker economic conditions.

What would make the bull case stronger?

Stable Borrow loss rates, clear margin expansion from the workforce reduction, and Square gross profit growth moving into double digits would all help. Together, those would show that Block can grow without taking too much credit risk.