Block’s Q3 Was Not as Bad as the Market Thinks

Block’s Q3 Miss Masks Underlying Strength in Core Business

Block (ASX: XYZ) is a name most people recognise even if they don’t realise it, those little white squares you tap your phone on to make a payment or the Cash App you might use to send money. The stock dropped 10% after posting Q3 Non-GAAP EPS of US$0.54, missing estimates by US$0.14, with revenue coming in roughly US$200M below expectations. On the surface, that looks concerning, but I think it is more a reflection of short-term volatility than a sign of deeper weakness.

The key driver behind this miss lies in Block’s exposure to Bitcoin-related revenue, which naturally moves in cycles. Over the past quarter, investors have rotated away from risk-on assets like Bitcoin, and that directly weighed on Block’s top line and profitability. However, that volatility has always been part of the company’s DNA. Its long-term fundamentals a growing ecosystem across Square, Cash App, and Afterpay remain intact.

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Block’s Core Ecosystem Delivers Solid Q3 Despite Crypto Drag

Despite falling short of headline expectations, Block’s Q3 results showed strong underlying profitability and disciplined financial management outside its Bitcoin operations. Gross profit rose 18% to US$2.7B, while net income climbed 63% year over year to US$462M, underscoring solid performance across the Cash App and Square ecosystems.

Breaking it down, Cash App generated US$3.8B in revenue, down 3% primarily due to lower retail Bitcoin trading activity. However, the segment’s gross profit grew 24% to US$1.6B, driven by higher adoption of Cash App Borrow and expanding subscription-based products excluding Bitcoin. This highlights the strength of Block’s recurring revenue streams and the continued shift toward more stable, service-driven income that supports long-term scalability.

The numbers reaffirm that Block’s core ecosystem remains resilient even when market cycles pressure its Bitcoin-related results. However, we do now see the impacts of moving crypto cycles on its operating performance.

Block’s Core Business Strength Shines Despite Bitcoin Volatility.

Block’s Square segment continued to show healthy momentum this quarter, with revenue climbing 12% to US$2.2B and gross profit rising 9% to US$1B. Growth was driven by the strong uptake of integrated payments and software tools among small to medium businesses. Operating income reached US$409M, up 27% year over year, reflecting the benefits of the company’s multi-year cost efficiency program. Restructuring costs of just US$10M this quarter suggest that the program is largely on track and helping streamline operations for stronger profitability ahead.

What stands out is that Block’s core business, its ecosystem of merchants and consumers across Square and Cash App, remains fundamentally sound. The main risk lies in its Bitcoin segment, which still accounts for roughly 30% of total revenue but operates on razor-thin margins of about 3.6%. This makes earnings sensitive to swings in Bitcoin prices, which is exactly what drove the revenue miss this quarter.

That said, this quarter’s pullback looks more like a correction in earnings quality than a deterioration in fundamentals. In FY24, Bitcoin contributed around 42% of Block’s top-line growth, largely due to the crypto bull cycle. Now that activity has normalised, we’re seeing a healthier balance in revenue composition. Importantly, the low-margin Bitcoin business has limited impact on Cash App’s profitability or its broader ecosystem, which continues to grow steadily and strengthen Block’s long-term financial base.

The Investors Takeaway for XYZ

For investors, while Bitcoin remains a large nominal driver of Cash App’s revenue, its true economic impact on Block is limited. The real growth and margin expansion continue to come from its core ecosystem, the mix of payment solutions, software tools, and subscription-based products that deliver recurring, high-quality earnings.

When looking at Block’s business model, it’s important to recognise that the stock will always carry a degree of volatility. Its exposure to Bitcoin and broader macro catalysts can influence near-term sentiment, but these are cyclical rather than structural risks. The long-term fundamentals remain strong, supported by sustained double-digit gross profit growth and clear evidence that cost efficiency initiatives are translating into stronger operating leverage and higher earnings quality.