Bernstein: Block’s third-quarter results beat expectations; can Neighborhoods drive user growth?

Where did the third-quarter beat come from?

Block reported third-quarter gross profit of 3.235 billion dollars, up 21.5% year over year and above market consensus by 4%; adjusted operating profit was 923 million dollars, above consensus by 5%. Cash App gross profit was above consensus by 5%, while Square was broadly in line with expectations.
Cash App gross profit grew 27% year over year, slower than 38% in the first quarter and 31% in the second. Consumer loan originations reached 19 billion dollars, up 40% year over year, also slower than the 82% and 59% growth in the prior two quarters.
Loan terms were extended from 4 weeks to 6 weeks, and fees rose from 5% to 7.5%; with loan limits unchanged for now, originations per customer fell 7% quarter over quarter, while the longer terms brought higher margins and customer retention.

Cash App monthly active users rose to 60 million in the third quarter, ending a stretch of three consecutive quarters at 59 million; management expects low-single-digit year-over-year growth in user numbers both in the fourth quarter of 2026 and for full-year 2027.
As of September 2026, Neighborhoods covered about 30 thousand merchants, with annualized payment volume of about 5 billion dollars, 5 times the level in June; the product had more than 500 thousand active users, about half of whom were new Cash App users. This annualized payment volume represents transaction scale, not Block revenue.
Bernstein believes Neighborhoods could extend Cash App’s existing customer-acquisition advantage in peer-to-peer payments, and that sustained monthly active user growth is also key to valuation improvement. However, retention of new users is still at an early stage, and new users are more affluent, requiring different approaches to monetization in the future.

Square’s third-quarter gross payment volume was 76.36 billion dollars, up 13.7% year over year and about 1 percentage point above market consensus; U.S. volume grew 10% year over year, roughly unchanged from the previous quarter, while international business grew 26% at constant currency.
Bernstein attributes the growth to investment in products and customer acquisition: year-to-date data through August showed that the growth rate of new-merchant acquisition through self-service onboarding was the fastest in a decade; new merchants joining through independent sales organizations rose 90% quarter over quarter, although this channel remains small.
Square’s third-quarter gross profit grew 14% year over year to 1.16 billion dollars, from growth in transaction volume, software adoption, and lending. As of September, only 16% of U.S. merchants used paid Square software.

The company raised its 2026 gross profit guidance from 12.51 billion dollars to 12.626 billion dollars, and its adjusted operating profit guidance from 3.47 billion dollars to 3.519 billion dollars.
Preliminary 2027 guidance calls for gross profit of 14.519 billion dollars, up 15% year over year, and adjusted operating profit of 4.575 billion dollars, respectively above market consensus by 2% and 4%; adjusted operating margin, measured against gross profit, is 32%.
Bernstein maintained its Outperform rating and 95 dollar price target. It values the company at 12 times its forecast 4.72 billion dollars of adjusted operating profit for 2027; it also noted that investors remain concerned about corporate governance, expense discipline, the quality of lending growth, and competition.