Block

How much of Cash App's gross profit growth is coming from Cash App Card interchange fees versus Borrow interest income versus Afterpay merchant fees? Block doesn't break this out clearly and I'm trying to understand which revenue stream has the best margin profile.

Block reported Q1 2024 gross profit of $2.09 billion, up 22% year-over-year, with Cash App contributing $1.26 billion of that. The company also reiterated its Rule of 40 framework as the guiding metric going forward, signaling a shift toward profitability discipline over pure growth.

Block is trading at roughly 15x forward gross profit, which is actually reasonable for a business growing 20%+ with an improving cost structure and two large TAMs in consumer and SMB fintech that are nowhere near saturated. The 2021 multiple was insane but the overcorrection has created real value.

Does anyone have a good handle on what Block's actual exposure is to the CFPB's proposed rules around buy-now-pay-later products being treated like credit cards? Would that materially change the Afterpay unit economics?

Block's move into small business banking with Square Checking and the Loans product is a direct attack on the most profitable part of traditional banking for SMBs. They have the transaction data advantage that no traditional bank can replicate for underwriting these customers.

Square's seller ecosystem gross profit growth has basically stalled — they're losing mid-market merchants to Toast in restaurants and Shopify in e-commerce and there's no obvious catalyst to reverse that. The flagship product is becoming a commodity.

Block's Bitkey hardware bitcoin wallet launched commercially in over 95 countries in late 2023, representing Jack Dorsey's push to make self-custody accessible to mainstream users. The product is priced at $150 and uses a multi-signature security model.

Cash App's monthly active user growth has decelerated sharply and they're now competing directly with Zelle, which is backed by basically every major bank and is free. The peer-to-peer transfer feature that built Cash App's brand is no longer a differentiator.

It's worth noting that Block has two pretty distinct businesses that probably deserve different valuation multiples — Cash App is more of a consumer fintech with network effects, and Square is basically a payments infrastructure and SaaS company for SMBs. Bundling them together makes the stock hard to analyze cleanly.

The Bitcoin segment is a strange beast — Block discloses BTC revenue separately but the gross profit contribution is tiny relative to the headline number because they basically pass through the coin at near-zero margin. It inflates revenue optics but doesn't move the needle on the business.

Cash App's gross profit per active user keeps climbing and they're still only scratching the surface of the lending opportunity with Afterpay and Cash App Borrow. If they can get credit losses under control, the margin expansion story here is genuinely underappreciated by the market right now.