On The Block #6 with Amrita Ahuja, Block CFO & Foundational Lead, + Matt Ross, Head of IR

Thanks for having me, Matt. It feels like I'm a longtime listener, first-time caller.

Yeah, absolutely. It's a great question and it's something that we spend a lot of time thinking about. Um first let me say we don't view growth and profitability to be a trade-off. They have to work together. And what that means is when we're making investments into our business, we're making investments to ultimately sustainably grow and profitably grow the business for the long term. And we need to be held accountable for driving those returns on every dollar that we invest, which is why we're so ROI focused across the business. We think about paybacks. We think about returns on the investment. We think about the unit economics for each of the products that we're investing in. And we only scale those investments when we have conviction in each of those KPIs and in the returns ultimately. So the level of precision based on what we're investing in can vary obviously for go-to-market investments. These are often tried and true and highly measurable investments that we make across each of our ecosystems from Square to Cash App to Afterpay and we can directly assess things like variable profit returns, things like our payback periods as I said. There are longer-term investments that we make though as well, you know, things like product development, things like investments in our AI infrastructure that ultimately power our product velocity. And so the things that we're looking at for those investments are a little bit different. They're things like engineering velocity, which we look at every week as a leadership team. They're things like time to customer value, which is a metric that we're still defining, but ultimately it's a metric that we want to hold ourselves accountable to that measures us getting quality products into the hands of our customers as quickly as possible. Um, minimizing that time from idea generation to real customer impact. Um and we look ultimately at product output. Those are the things that then translate to customer value and translate to our performance. Um maybe the final thing I'll say on this is what we've shown over the past six months is that we can see we're seeing enough leverage in our business that you don't need to choose between reinvesting for growth and delivering near-term profitability with expanding margins. And that we've demonstrated that we can fund meaningful investments in our business while improving the efficiency with which we operate. Um, and you know what we're seeing in terms of our 26 guide is an eight point margin expansion relative to last year, three points of margin expansion relative to our initial guide for the year. Um, and if you look at the profitability guide, if you look at our gross profit guide for 2026 relative to what we shared at investor day, our first guide for the year, we're higher by about 530 million in gross profit. And we're higher by 770 million in AOI. So we're taking effectively about half a billion dollars of cost out relative to that initial guide through operating leverage while simultaneously still giving ourselves the room to invest meaningfully in initiatives like go-to-market, AI, um and you know the requirements in delivering our products to our customers.

Sure. So we've talked a lot about go-to-market. Um I think we've built an entirely new motion for ourselves particularly on the Square side that we're really excited about because this go-to-market motion which includes the expansion of distribution channels from first-party sales to now third-party sales to marketing to partners, the expansion of these distribution channels look to be largely incremental on each other. What it means is that we are doing more and we're reaching more sellers as a result. Sellers that we wouldn't have reached through our self-onboard channel, which by the way continues to operate at an incredibly high level. Our strongest rate of self-onboard since 2021 in this last quarter. So um you know what I look at as we're measuring all of these things is obviously continuing to drive attractive incremental returns to all the marginal dollars that we put towards go-to-market on both the Square side and Cash App side. Um, we continue to be focused as we look at field sales on that marginal ROI and what we've seen is that the per rep performance has improved quarter over quarter even as we've ramped that team aggressively this year. Um, we've also seen that our field sales team delivered more than two times the NBA in Q2 than they did in Q4 and nearly three times the sizable deals, the million-dollar plus deals. And over three times more realized GPV. So they're obviously reaching larger sellers. Um in addition to as I noted the fastest growth on self-onboard in five years and our ISO channel also ramping by about 150% quarter over quarter. So each of these distribution channels we don't think we've reached the limit because we're seeing strong marginal returns. We want to keep investing in each of them because that's ultimately going to create more sellers, larger sellers, sellers who will stay on our platform and continue to grow with us for the years to come. Um from an AI perspective and maybe I'll talk about both AI and then I'll come to neighborhoods as I think about the differential investment paths for us over the next year. So for AI um you know ultimately as I said our focus is accelerating time to customer value increasing the velocity at which we're delivering for our customers. Um Square shipped 130 features in the first half of this year three times more than the first half of last year. Um, we have been very deliberate over the past few years building the underlying AI infrastructure that powered that velocity. And those investments are now enabling us to basically externalize products in ways that weren't previously possible. Buzz is a good example of this. It wouldn't exist without all of the work and infrastructure investment we've made over the past few years. Buzz is we think the first platform that we've seen that brings agents and humans together on the same level. Imagine a place where you can truly collaborate with your team and have all of the intelligence tools at your fingertips. Um it just speeds up all the feedback and iteration and gives you the power of AI again at hand and integrated deeply into your workflow, not sort of off to the side as its own chat experience. Um so we're excited about continuing our work with AI both in terms of how it powers our company and in potentially how it could power other people's companies and our sellers. Neighborhoods we're really excited about. We have high conviction that we have now found product market fit and so we're focused on scaling it and ultimately what that means is since launching auto-enablement for neighborhoods we've scaled the number of sellers by more than 10 times. Um we've demonstrated that our onboarding model can scale efficiently and that we can retain our sellers as they onboard into neighborhoods and now we're focused on scaling and expect that neighborhoods should be one of the top reasons, one of the top drivers of customer acquisition for Cash App in the near future.

Totally.

Sure. Yeah. Um and look, I would say totally to agree with your last point like you feel a little bit of that magic in the early days of a new product like neighborhoods or AI. We felt that with Borrow and we've seen it meaningfully transform our P&L and be a huge driver of customer value for millions of Cash App customers. Now it's a product that we want to ramp responsibly and we believe we have ramped responsibly. So let me talk a little bit about how we manage that other side of Borrow credit risk and ultimately how that flows through our P&L. So first let me say loss rates for a lending product for our lending portfolio are really an amalgamation of lots of things. Multiple products and multiple maturity curves both in terms of the product and in terms of new versus existing customers or mature customers within those products. That blended average is what you see show up in the P&L in terms of loss reserves but it's not how we manage the portfolio internally. Um and what we are seeing when we look across that full matrix of product and cohort level losses is very healthy and strong unit economics and strong profiles really across the board. So you know we manage risk at a very granular level. We're looking at within Borrow. We're looking at the four-week construct as well as the six-week construct, which is our newer ramping construct within Borrow to align the maturity curve with our other buy now pay later products. For Afterpay, we're looking at not only the traditional Afterpay, you know, buy now pay later, but also our newer ramping products like post-purchase and pre-purchase. And then for each of those programs, we're looking, as I said, at new customer cohorts versus mature customer cohorts. And over time, we generally see as we grow the mix of our lending towards mature customer cohorts that loss rates normalize and ultimately go down. Um, so our goal ultimately with the entire lending book is to maximize variable profit dollars. That means managing risk loss to the right point in the efficient frontier between growth and loss and doing so on a per product per cohort basis. Um it's a science and it's finely tuned by our incredible credit underwriting team and it's something that they're doing on a weekly basis. And so ultimately that underwriting infrastructure around you know the product structure that we have the speed of understanding and data points around our customers is what allows us to be incredibly dynamic to the extent that we do see anything different in terms of risk loss relative to our targets or the broader market conditions. Um, and ultimately what that means because of our ability to pivot and move quickly is that risk loss is more of an input than it is an output and that we have the ability to tighten or loosen based on the week-to-week things that we're seeing here.

Yeah. Yeah. Um so we had a really strong quarter another strong quarter here. Origination's growth was 59% year-over-year. And as I said, as we look at the product and cohort mix, we saw healthy risk trends across the portfolio. Loan losses grew faster than origination growth as folks have seen. But as you can imagine, our newer lending products, Borrow, Afterpay, pre-purchase, and post-purchase on Cash App card. Those products grew much, much faster than the 59% blended origination growth. And those newer products which are newer have higher loss rates. All of this is deliberate on our part to drive consumer lending variable profit growth as I said which is really by the way almost exactly in line with origination growth in Q2. Variable profit growth for our lending consumer lending products almost exactly in line with origination growth. Underneath the surface of risk loss growth. Let's talk about some of those key drivers. First, as I noted earlier, we are actively expanding Borrow to the six-week construct. Um why it better aligns with our buy now pay later duration. It simplifies the customer experience. Um, we also see that our six-week construct, which we've been testing for some time now and are starting to ramp more meaningfully across customer cohorts, has a higher variable profit margin and therefore higher return on invested capital ROIC. Also, it does have higher risk loss on absolute terms, but not on a duration adjusted basis. It generates fewer originations currently because loans are outstanding longer, but that's a favorable tradeoff on the metrics that we care about most, particularly variable profit dollars and ROIC. So, as we scale the product, we're going to optimize loan sizes and potentially up over time. So one key thing to know about what's happening in Q2 is that expansion of Borrow six week and that being a driver for the higher loss rates but ultimately stronger variable profit relative to four-week. Second thing, as I noted, products like Afterpay, post-purchase, pre-purchase have somewhat higher loss rates than four-week Borrow which was a primary growth driver for us over the past 12 to 18 months. Um, and we see that there's tremendous opportunity to continue to scale these products and scale them responsibly around the unit economics that we have. And you know finally these newer products have a higher mix of new customer cohorts again by design as we're ramping the products. Um and you know over time as we see a higher mix of sort of steady state mature versus new customer cohorts we have the opportunity to rationalize loss rates further. Um overall the right question to ask us is variable profit dollars and maximization around return on invested capital not simply loss rates in isolation. They work across the full P&L and what we're seeing again is strength and continued growth from a variable profit perspective and very strong returns from an ROIC perspective.

Sure. So we think that there's opportunity to continue to grow Cash App actives. In Q2, the growth that we had in the low single-digit range was what we had signaled and what we had expected. When we think longer term, um, we think, and we've even talked about this benefiting potentially in the back half of this year, pieces of it, but we think that there's opportunities in two particular areas that I'll call out. One, continued ramp of neighborhoods. This is clearly the largest opportunity that we have to potentially drive new customers, new demographics, new geographies, new exposure into Cash App. We know that our Square buyer network is hundreds of millions of buyers annually. Um, and we think this has the opportunity to be one of the top drivers of attributable new actives into Cash App in the future. Um, the second thing that I'd point out and again the medium to long term is growth with younger demographics. Um, we just launched managed accounts for kids. This is kids aged 6 to 12. I know both you and I have kids, Matt, in that age range and we have seen the excitement of our kids and honestly like the financial literacy that they gain from it and having their first debit card that they can personalize. Um it's incredibly empowering. Um and it's also one that engages the parents and the families. They lean into it when they have an opportunity to engage with their kids in that way. Obviously, there's full parental supervision and the parent and or guardian is managing that account. Um and obviously these accounts have different monetization profiles than an adult account would. But our goal here is to establish trust early and build that depth of engagement and retention across a family. So those are two things that I would say we feel that we can do differentially to grow our Cash App customer base. And then of course there's all the tried-and-true core go-to-market work and product flow work that we are always doing from you know network enhancements to peer-to-peer improvements, funnels, flows, false positives, all these things that we know drive sort of ease of customer use within our platform. Go-to-market in innovation across channels, across brands, across partnerships. Um, and then always on innovation, all the things you've been hearing about from more ways and more utility within Cash App, from phone plans to tags to Afterpay on Cash App card, and more to come.

Yeah. So, you know, what we have seen is the signs of the ability to truly ramp actives into neighborhoods into Cash App via neighborhoods. Um as the base of seller grows, sellers on neighborhoods grow, we think we have the opportunity for that to become more meaningful and actually show up in the numbers. In the second quarter, what we saw was 50% of actives that we signed up via neighborhoods were not active on Cash App in the prior 30 days. They were either entirely new to Cash App or were lapsed and we were able to win them back via the neighborhoods program. Um, so we think, you know, at that 50% rate and the scale of sellers that we can bring into neighborhoods over time that we can drive real incrementality here. Um and then over time have the ability to increase that customer's engagement into Cash App and expose all the other things that you can be doing within Cash App to them.