Block (ASX: XYZ) Lifts 2026 Profit Forecast as Cash App Accelerates, but US$764 Million Regulatory Risk Tests Growth

Block, Inc. (ASX: XYZ) is delivering faster earnings growth across its financial technology businesses, with third-quarter adjusted operating income surging 92% and management upgrading its full-year forecasts. Yet behind the improving margins sits a significant challenge: rising lending losses and a proposed US$764 million regulatory settlement. The question is whether Block can sustain its profitability gains while managing these financial obligations.

Key Numbers

• US$3.24 billion: Third-quarter 2026 gross profit, up 22% year-on-year.
• US$923 million: Adjusted operating income, up 92%, representing a 29% margin.
• US$2.07 billion: Cash App gross profit, increasing 27%.
• US$12.63 billion: Updated 2026 gross profit guidance, representing expected annual growth of 22%.
• US$764 million: Proposed net payment under a US Department of Justice settlement, subject to final agreement and court approval.

The Latest Development: Profitability Accelerates

Block's third-quarter results, released on 3 November 2026, demonstrate improving operating efficiency across Cash App and Square.

Revenue increased approximately 10% to US$6.72 billion, while adjusted diluted earnings per share more than doubled to US$1.13.

Square's gross payment volume climbed 14% to US$76.4 billion, while Square gross profit increased 14% to US$1.16 billion.

Following the results, Block upgraded its 2026 adjusted operating income forecast to US$3.52 billion, representing expected annual growth of 69%.

Management also outlined preliminary 2027 expectations of US$14.52 billion in gross profit and US$4.58 billion in adjusted operating income.

These forecasts suggest Block expects operating profitability to expand faster than underlying gross profit, although achieving those targets will depend on continued growth and disciplined expenditure.

What Stands Out to Us

Block's competitive advantage rests on its established consumer and merchant financial ecosystems.

Square provides payment processing, merchant software and business services, while Cash App connects consumers through payments, borrowing and other financial products.

Together, these platforms create opportunities to distribute additional services through existing customer relationships.

However, the financial results reveal an important distinction.

Reported operating income increased just 5% to US$428 million, considerably slower than the 92% improvement in adjusted operating income.

Transaction, loan and consumer receivable losses climbed approximately 66% to US$602 million, significantly outpacing gross profit growth.

Consumer lending originations reached US$19 billion, increasing 40% year-on-year.

This suggests Block's expanding lending operations are creating additional revenue opportunities alongside greater credit exposure.

Block also faces a proposed US Department of Justice settlement involving a gross monetary component of approximately US$964 million, reduced to an expected net payment of US$764 million after credits for previous regulatory resolutions.

The agreement remains subject to finalisation and court approval, with potential additional financial exposure.

What the Company Is Doing Now

Block is expanding Square's merchant distribution, strengthening Cash App's lending capabilities and developing artificial intelligence products designed to improve productivity and customer engagement.

Cash App reached 60 million monthly transacting active accounts in September, with its Neighborhoods initiative helping connect consumers and merchants.

The company has also expanded its Square Kiosk offering and begun piloting its Buzz artificial intelligence platform.

Management expects its first machine intelligence revenue during the fourth quarter, although the financial contribution remains unproven.

Insight: Can Block Turn Rapid Growth Into Sustainable Profits?

We think Block's established payment networks and improving operating leverage provide a credible foundation for further earnings growth. Its ability to expand adjusted margins while developing additional financial services is encouraging. However, rising lending losses, regulatory obligations and the gap between adjusted and statutory profitability complicate the financial outlook. We would place greater emphasis on sustainable cash generation and credit quality than headline earnings growth alone. Block's commercial prospects remain constructive, but demonstrating consistent financial discipline will be essential to supporting its longer-term valuation.

What Happens Next?

Block's fourth-quarter results will provide the next important test of management's upgraded forecasts.

The company expects approximately US$3.32 billion in quarterly gross profit and a 30% adjusted operating margin.

Progress towards its 2027 profitability targets, stabilising credit losses and finalisation of the regulatory settlement will help determine whether Block's accelerating earnings translate into durable financial performance and stronger shareholder value.