22% gross profit growth puts Block’s regulatory costs in sharper focus

Strong Growth Meets a $764 Million Regulatory Charge

Block, Inc. (ASX:XYZ) produced a markedly stronger third quarter on the operating line, but a proposed settlement with the US Department of Justice has placed a large question mark over how much of that momentum translates into shareholder returns. Gross profit rose 22% year on year to $3.2 billion, while net income attributable to common stockholders increased to $565.6 million from $461.5 million.

The DOJ agreement in principle would resolve an inquiry into whether Block failed to maintain an effective anti-money laundering program under the Bank Secrecy Act. The proposed deferred prosecution agreement is expected to carry a gross monetary component of about $964 million and a net payment of approximately $764 million after credit for prior regulatory resolutions. Block accrued the $764 million liability at September 30, although the filing cautions that the final agreement may not be reached on those terms, or at all, and that losses could exceed the amount accrued.

The regulatory overhang sits against a growth profile that has strengthened through 2026. Block’s strong second-quarter growth had already featured 25% gross-profit growth, and the latest quarter continued that trajectory. Cash App gross profit rose 27% to $2.1 billion, driven by Cash App Borrow, Afterpay Post-Purchase and Cash App Card, while Square gross profit increased 14% to $1.2 billion. Gross payment volume rose 13% to $78.2 billion.

Cash App Lending Drives Financial Solutions Growth

Total net revenue rose 10% to $6.72 billion. That headline understates the momentum in the underlying payments and financial-services businesses: commerce enablement revenue increased 16% to $3.48 billion, and financial solutions revenue jumped 31% to $1.44 billion. Bitcoin ecosystem revenue fell 11% to $1.80 billion, reflecting the volatility of bitcoin prices and demand, even as the segment contributed only 2% of total gross profit.

Cash App Borrow was a major contributor to the financial-solutions increase, with revenue from the product up $193.6 million in the quarter. Block said origination volumes increased as access expanded. The cost of that expansion is visible in the accounts: transaction, loan and consumer receivable losses rose 66% to $601.7 million in the quarter, while loan losses increased 83% to $439.0 million.

Costs Improve, but Credit and Legal Expenses Remain Elevated

Block’s operating income was $428.5 million, only modestly above the prior-year $409.4 million despite the gross-profit increase. General and administrative expenses rose 56% in the quarter, primarily because of estimated and settled litigation and regulatory matters. The company’s adjusted operating income was $922.7 million, but that measure excludes $435.0 million of contingencies, restructuring and other charges, including certain litigation and regulatory costs.

The nine-month figures show the tension more starkly. Net income attributable to common stockholders fell to $345.4 million from $1.19 billion, while transaction, loan and consumer receivable losses more than doubled to $1.69 billion. Block attributed the rise in loan losses primarily to higher origination volumes and said underlying loss rates and portfolio credit performance remained stable; the filing nevertheless shows classified loans increasing to $505.8 million from $381.0 million at the end of 2025.

Liquidity Leaves Room for Repurchases and Remediation

Block ended the quarter with $10.1 billion of available liquidity, including $7.86 billion in cash and cash equivalents, marketable debt securities and an undrawn $900 million revolving credit facility. It also had $809.3 million available under warehouse funding facilities. The company repurchased $700.9 million of Class A stock during the first nine months, although no shares were bought under the programme in the third quarter, leaving $4.6 billion authorised.

That balance-sheet capacity provides a measure of financial flexibility, but it does not remove the uncertainty around the DOJ process. If a final deferred prosecution agreement is approved, Block would face a three-year compliance period; a breach could expose it to prosecution on the deferred charge. The separate proposed $150 million settlement of shareholder derivative actions also remains subject to court approval, adding another unresolved legal item to the company’s otherwise improving operating picture.