Summary Block's post-earnings selloff was overdone - recent product launches and its bitcoin business justify the stock's rapid recovery. Square's new biannual product launch cadence, the first of which included Square Handheld and a Square AI teaser, positions the company to reignite Square segment growth. AI integration into Square POS leverages proprietary data and distribution, offering robust upselling potential and should drive strong future subscription and services revenue. Block is among the best bitcoin businesses available on public markets, with a full-stack approach and the ability to deploy bitcoin services into enormous ecosystems of merchants and consumers. Further, the company earns a very lucrative yield on its Lightning channel, which is seeing booming growth. Block is at a crossroads; it has faced several years of multiple compression and poor stock performance, but recently has inflected EPS and is looking to re-accelerate Square and Cash App growth. Now, execution is everything. Just a few short weeks ago, I wrote one of the most uncomfortable articles in my time writing here for Seeking Alpha. Jack Dorsey's Block ( XYZ ) reported objectively bad earnings, with slowing growth and meager guidance. The stock got decimated. It dropped from 20% from around $60 to $45 upon release. Block is personally my top holding and a stock I have written on several times with consistently bullish stances. Watching this stock underperform high-flying AI names and fintech competitors alike for the past few years has been a challenge, to say the least. Even worse, I have been recommending others to buy the stock, just to watch it consistently underperform. My conviction was shaken for the first time after seeing the market response to the recent earnings. But I read through the report with an open mind. What I saw didn't justify a 20% selloff. I began writing. The article was titled 'Don't Let This Selloff Go To Waste' and I rated XYZ a strong buy. It felt horrible at the moment, but I had to stomach that discomfort. Since then, the stock has returned to its pre-earnings level above $60. I didn't expect such a rapid recovery, but there are very clear reasons for such. Since the earnings report, the company has announced significant product launches, management has been far more engaged with retail, and there's been a major step toward the company's bitcoin (BTC-USD) inflection. The company is showing renewed focus on innovation and product velocity. The thesis underpinning my Strong Buy rating in this article is simple: Block will reaccelerate growth through product stack depth, innovation, and solid execution. I typically wouldn't cover a stock again so soon, but there's much to talk about here. Let's dive right in. Square Releases The recovery began with the company's first Square Releases, a new biannual product launch cadence for Square merchants. The first Releases announcement was on May 13th, which coincided with the J.P. Morgan 53rd Annual Technology, Media and Communications Conference. Both CEO Jack Dorsey and CFO Amrita Ahuja presented at the conference. I have a detailed writeup of the conference on my X account . The core takeaways from their talk were: Four key priorities for the rest of the year: expand Cash App Borrow ramp Afterpay on Cash App card market share gains in square and re-acceleration of GPV growth launch of Proto, the Bitcoin mining ASIC business. Expansion of Cash App Borrow is not predicated on an expansion of risk appetite. It’s based on the improved unit economics by switching to SFS (Square Financial Services) for origination & the improved profitability thereof. They can now profitably lend to more users. Acceleration of Square GPV growth will be driven by a revamp of marketing strategy. Currently, 80% of Square customer acquisition is organic/self-serve. The company wants a 50/50 balance between self-serve and internal sales led/partnership driven. Meaning, the sales approach has changed to favor more outbound, free hardware, and contract-driven sales. This approach is what allowed competitors to gain share vs Square in recent years. The shift to field sales has resulted in positive early signs with larger customer wins. Cash App gross profit accelerated in April vs to the March run rate, which now makes the company's poor Q2 guide look "uncharacteristically conservative" since it assumed a weakening consumer. Such weakening has not materialized through April and May. The goal of codename: goose is to have a fully autonomous AI agent that can act as a CFO or COO for Square merchants and a personal financial assistant in Cash App. Product velocity and innovation are what will regain shareholder trust, belief, and enthusiasm Both Dorsey and Ahuja expressed far more optimism during the investor conference compared to the earnings call. The stock climbed from $55 to $58 on that day. On the morning of the conference, the company announced one huge product release and one huge teaser: Square Handheld and Square AI. Square Handheld is the best-in-class portable point-of-sale ("POS") system currently available. It is the thinnest, lightest, has the best camera, offers the most payment methods, can process payments offline, and is very cost competitive. X.com user @nachunja A handheld POS is important for retail stores, restaurants, and any other business where it's advantageous for customers to check out at a non-fixed location. This product launch, alongside the company's revamped marketing strategy, aims to reaccelerate Square GPV growth. I believe it's a winning equation. Square Handheld was the flagship launch of the first Square Releases, but this also came with a host of other updates for each of the company's specific verticals (Food & Beverage, Retail, Services, and Health & Beauty). The most important software update was the launch of a new Square POS unified software interface . It enhances the cross-compatibility of Square software across different devices and is a critical step toward moving up the value chain from SMB's (small-to-medium business) to large enterprises. Finally, the company teased Square AI, an AI model that is native to the Square POS software. It's difficult to understate the opportunity that Square has here. I have consistently shared what, I believe, are the keys to success for AI companies: proprietary data and distribution capability. Square fits both of these very well. Data makes the AI smart and useful, and distribution makes the economics work. Integrating AI into the Square software stack moves it up the value chain once again: it started as a simple way to accept card payments, then became a POS solution for merchants, and then a full-stack ERP platform. Square AI will make it a full-stack business operating system. This is an incredibly robust value proposition for existing merchants and should also attract new merchants quite well. On the distribution front, it will be as simple as a software update. My assumption is that a base-level Square AI offering will be bundled into the Free plan with additional features available for both Plus and Premium plans. www.squareup.com This will help generate further subscription & services growth over time as AI has very clear upselling benefits for both existing and new merchants. In my recent article , I summarized my core long-term thesis as such: Meanwhile, the market is completely ignoring the ongoing profitability inflection Block is enjoying. The company demonstrated strong operating leverage in its subscription and services line item, growing revenue by over $200m YoY (+12.5% YoY) while segment COGS grew only 2%. Segment gross margin grew from 83.9% to 85.5% YoY. Segment contributions here grew YoY from both Square and Cash App, and I maintain the conviction that this line item is the future driver of Block's growth. It's the key to a sustainable profitability inflection for the company, and recent news regarding Cash App Borrow, discussed below, will begin driving strong operating leverage in this line item. The Cash App Borrow news referenced was that the company would begin originating Cash App Borrow loans internally within Square Financial Services, which has a US banking charter. This improves the unit economics of the segment and will generate further growth from the Cash App segment contribution. Square AI will accelerate subscription & services growth from the Square segment contribution. Combined with the company's renewed focus on outbound marketing and customer acquisition, I see a very clear path for Square to begin regaining market share and accelerating growth. Don't just take my word for it, though. Block CEO Jack Dorsey himself agreed with my take on X: x.com The seminal Square Releases Day was a great success and was met with excitement from the market. It encapsulates perfectly my thesis: execution excellence underpinned by deepening POS hardware offerings (deepening the product stack), enhancing software functionality (innovating UI/UX), and building hype for future product innovations with Square AI. This brings me to my next point: management engagement. Management Engagement I have been posting about Block for well over a year now on X but have never seen Jack Dorsey engage with the retail community as much as he has recently. It seems the response to the recent earnings call really did light a fire under him. Just look through his replies . He's been replying directly to retail analysts like myself that provide in-depth coverage of the company, its products, and its growth runway. X.com There are many such examples. Engaging with the retail community on X has become much more common in recent years, with many CEOs and other executives using it as a vehicle to communicate directly to a retail audience. Again, returning to my thesis: engagement with the retail community ensures investors understand the strategic direction the company is pursuing. It's not necessarily enough to launch innovative new products; you also need to market them well and ensure the market understands the innovation. The final component of the stock's recovery is Bitcoin. The company's full-stack bitcoin offerings are attracting more attention as the leading cryptocurrency hits new all-time highs and Bitcoiners gather at bitcoin 2025 . Block's Bitcoin Strategy Block has one of the most robust Bitcoin strategies of any publicly traded company. It offers products aimed at accelerating the adoption of bitcoin as a currency, the capability to buy bitcoin easily and hold it safely, and soon the ability to mine bitcoin. The company also has a Bitcoin treasury dollar-cost-averaging strategy. In other words, it holds bitcoin, allows users to buy bitcoin, is increasing access to bitcoin mining, offers cold storage capabilities, and supports the open-source development community. The biggest product announcement to date for Block's bitcoin strategy, however, came just recently on May 27th at the Bitcoin Conference. The company launched a pilot test allowing Square sellers to accept bitcoin as payment. It hopes to have this feature widely available by 2026. x.com These transactions will be processed on the Lightning Network , a payments protocol on the Bitcoin Blockchain that greatly improves processing time for transactions. Historically, a major criticism of bitcoin as a currency is that transactions take roughly 10 minutes to settle. This is due to the design of the blockchain itself, in which new blocks are mined approximately every 10 minutes. Each block contains a variety of data, most importantly it contains a 'merkle root' expression of all transactions that were accepted by nodes during that block time. This is slow and clunky. Lightning, on the other hand, essentially allows two nodes to stow some bitcoin away in a multi-sig channel. The two parties within this channel can now transact privately and instantaneously in a private channel off the main blockchain. Next, many of these nodes can be interconnected to create a web of Lightning nodes, effectively creating the Lightning Network. The network supports multi-hop routing, where payments are forwarded throughout the web of connected channels. These transactions are enforced using hashed timelock contracts (HTLCs) and can settle in milliseconds, as long as each node along the path has sufficient liquidity. Block's Cash App is Lightning compatible, and Square bitcoin payments will also rely on Lightning. This allows both Square merchants and Cash App users to transact with bitcoin instantaneously. It creates the most widely deployed bitcoin payment rail. Block's head of Bitcoin, Miles Suter, spoke at the bitcoin conference on May 28th. He mentioned that Cash App has seen a 7x increase YoY in Lightning payment volume and 25% of outbound transactions are now on Lightning. Why does this matter? It matters because Block operates a sizable Lightning channel (the 7th largest, known as c=) and earns nearly 10% bitcoin on bitcoin yield. With 189 bitcoins in the channel (according to mempool), this represents a yield of nearly 20 btc per year. At $100k per coin, this is $2m per year in passive yield on the company's bitcoin, which is otherwise sitting in its treasury. Yield is generated by Lightning nodes when they place BTC liquidity in a channel and open that channel up to route payments through it. This is non-custodial yield, meaning Block still maintains ownership of that bitcoin. They are generating yield with an asset on their balance sheet without introducing counterparty risk. If payments stop flowing, there is no risk to the bitcoin. The yield will just dry up. Bitcoin 2025 livestream The biggest question mark for Square payments, though, is on tax treatment. As it stands, bitcoin is classified as property, meaning it is a commodity and is regulated by the CFTC. Selling a commodity triggers a taxable event, requiring a calculation of profit by taking asset value at time of sale versus cost basis. On the back end of a Square bitcoin transaction, Block would sell bitcoin for the equivalent amount of USD, allowing the customer to pay in bitcoin and the merchant to receive USD. The issue is that this creates a taxable event. But how can you calculate the cost basis? It is conceivable that this is possible for bitcoin purchased through Cash App and held in Cash App, but for any bitcoin paid from an external wallet, it becomes prohibitively difficult to calculate tax. Further, this creates a two-tiered tax (capital gains and sales tax) for customers and disincentivizes use. This question is likely the reason that Block said "The roll out... is expected to reach all eligible Square sellers in 2026, subject to applicable regulatory approvals." in the first section of the announcement. Regardless, this move highlights how well the company is driving forward the bitcoin ecosystem. It is helping to bridge the gap of bitcoin adoption from enthusiasts to everyday people. It is building the infrastructure required to facilitate this and has the expansive two-sided merchant / consumer network required to greatly accelerate it. For those that believe that Bitcoin will play an integral role in the financial world of tomorrow, it's difficult to find a company better positioned to boom from that paradigm shift. Assuming that both bitcoin payments on Square and Proto's bitcoin mining chip reach mass rollout in 2026 (this is a fairly big assumption), Block will have successfully tied together its entire Bitcoin ecosystem. Again, this ties into my thesis of product stack deepening (bitcoin mining ASIC) and innovation in existing products (bitcoin payments on square). All that's left for the company's Bitcoin segment is to execute on this. Risks The biggest risk to the thesis of this article is in the thesis itself: execution. Block has faced challenges in the past with execution. The stock has tumbled a long way from the COVID-era highs around $280. In the past few years, Block has gone through layoffs, executive reshuffles, an influx of competitive threats, an ever-changing regulatory environment, a short report, countless analyst downgrades, mass inflation, and the fastest rate hike cycle in recent history. Not a favorable environment for a fintech. Throughout this time, they have been evolving as a company as well. Jack Dorsey sold Twitter and moved back to full-time CEO of the company and brought renewed focused on the ecosystem of ecosystems strategy. Amidst the challenging macro backdrop, the company lost focus on the Square segment. Square is still the market leader, but only by a narrow margin, with around 28% share. Cash App made up for much of this weakness for a while but hasn't grown monthly active users in 5 consecutive quarters. The stock has suffered severe multiple compression since. Despite reporting booming EPS growth, the stock is completely range-bound and has been for 3 years now. Data by YCharts Investor Takeaway We are now at a crossroads. Block's traditional finance segments, Square and Cash App, need to reaccelerate growth. The company is focused on the following things to achieve this: outbound marketing and large business acquisition for Square and network density and teen customer acquisition for Cash App. The company's bitcoin business is doing phenomenal, as we discussed, but this is largely ignored by the market. It is not yet very accretive to Block's financial results, but that will change over time. The execution risk remains. Should the company fail to reignite Square and Cash App growth, the stock will continue lagging the market. This is the opportunity, though. The market is basically pricing in a lack of execution. Despite exceptional EPS growth, the stock trades at only 22x forward PE. Using estimated 2026 earnings, the stock trades at 15x forward PE. Meanwhile, EPS is inflecting underpinned by robust subscription & services segment growth. I believe there's plenty of reason to remain bullish, as described in this article, so I believe there's plenty of reason to remain invested or initiate a position in Block stock. I rate the company a Strong Buy.
