Block, Inc. (XYZ) Q2 2026 Earnings Call Transcript

Thank you all for joining today's call. We have Jack and Amrita with us today along with Owen Jennings, our business lead, and Thomas Templeton, hardware lead for Block. Today's discussion includes forward-looking statements regarding our strategy, guidance, and long-term goals. Actual results may differ materially due to risks and uncertainties described in materials filed and furnished for the SEC and should not be considered an indication of future performance. These statements speak only as of today and we're going to take no obligation to update them except as required by law. Reconciliations of any non-GAAP financial measures that we discuss to the most directly comparable gap measures are available in our shareholder letter. Further, any discussion of our lending and banking products refer to products offered through Square Financial Services or our bank partners. Before turning the call over to Jack, I wanted to note that we're trying something new this quarter.

In addition to taking questions on the call, we've sourced questions directly from shareholders on X. Throughout the call, I will ask questions directly of Jack, Amrita, Owen, and Thomas, based on topics our shareholders asked us to explore on our earnings call with that over to you jack thank you all for joining us we had a strong second quarter and we're raising our guidance for the year based on the strength of our execution my letter this quarter focuses on our capabilities and how we build intelligence tools are making it easier to build all the software we need what's harder is knowing what's to build owning the capabilities behind it and connecting those capabilities in ways that create value for customers. That's been our focus from the beginning, and it's why our network gets stronger with every seller and every customer who joins CashUp. There's more detail in my letter, and I hope you get a chance to read through it. With that, I'll turn it over to Amrita.

Thanks, Jack. We outperformed our guidance and achieved record profitability in the second quarter. A few of the highlights. We grew gross profit 25% year over year, while delivering an all-time high 27 adjusted operating income margin and growing adjusted diluted eps 65 percent year over year square gross profit and gpv both grew 13 year-over-year in the second quarter with us gpv growth accelerating to our strongest growth rate since the second quarter of 2023 we continue to grow our field sales motion and we now have more than 200 active iso partners helping drive over 150% quarter-over-quarter growth in the number of new sellers joining Square from the ISO channel. We drove strong gross profit growth across commerce enablement and financial solutions, and we continue to expect gross profit to grow roughly in line with GPV in the second half of the year. Cash App gross profit grew 31% year-over-year in the second quarter. Monthly transacting actives grew 3% year-over-year in June, and we continue to expect low single-digit actives growth in 2026 as we execute on our network growth strategies. Cash App Commerce enablement volume grew 17 percent and Cash App Consumer Lending origination volume grew 59 percent, reflecting our focus on driving deeper engagement. We continue to ship innovative new products in the second quarter, including Cash up tags and cash at mobile and we brought after pay pre-purchase on cash up card to general availability we achieved record profitability this quarter while continuing to invest in the long-term growth of our business we expanded go-to-market investment in the second quarter across square and cash app and we continued to drive product velocity through our investments in ai most notably in the public launch of buzz our agentic collaboration platform in july We're raising our 2026 guidance across gross profit, adjusted operating income, and adjusted diluted EPS, flowing through the Q2 outperformance and raising our expectations for the second half of the year. For the full year, we now expect gross profit of $12.51 billion, up 21% year over year adjusted operating income of 3.47 billion dollars or a 28 margin and adjusted diluted eps growth of 70 percent year-over-year for the third quarter we expect year-over-year gross profit growth of 18 adjusted operating income margin of 28 percent and year-over-year adjusted diluted eps growth of 89 percent we expect third quarter interest expense of 50 to 55 million dollars full year interest expense of 200 to 210 million dollars and a mid 20 non-gap effective tax rate in the third quarter and for the full year as we look to the second half of 2026 we have several initiatives that we can invest in to sustain attractive long-term growth and square we've proven strong ROIs for new go-to-market motions and have further opportunities to invest across self-on-board, field sales, and ISOs. In Cash Hub, we have numerous products that we expect to continue to grow, including Cash Hub tags and afterpay pre-purchase. Neighborhoods, our program to connect our two ecosystems, has demonstrated strong product market fit, and we expect to lean into investments to scale this differentiated network faster in the second half of the year. AI is helping us deliver more value to more customers. We plan to continue to invest in our AI infrastructure, including Buzz, to drive further velocity gains. The breadth of high ROI growth opportunities we have is significant and we plan to increase the magnitude of our investment if we see the right opportunities to deploy profit upside. Our increased guidance reflects the strength of our first half execution and the momentum we're carrying into the second half of 2026. Nearly six months after we reorganized Block to make intelligence the center of the company, we're moving faster to deliver value to customers and are executing on our long-term growth initiatives, all while delivering meaningful margin expansion and profitable growth with that i'd like to open up the call to q a now we will begin the q a portion of the call please click the raise hand feature to ask a question please limit yourself to one question our first question comes from the line of tinjin huang from jpmorgan hey thanks katie great results here um for jack i was hoping like last quarter to maybe just uh

to get a progress report six months into the reorg and they'll ask you last quarter i just want to get an update here what have you learned about the incremental ai investment and talent you need to scale this model across square and cash app and i know you've talked about streaming intelligence a bunch in a lot of different places i'm curious if you're on track with that and what proof points you you call out to say if you're on track or not on track um with you there yeah thanks attention um i would say we're definitely on track at the biggest proof point is our shipping velocity the the team we have a very small team on a product like buzz which is not just something

that we launch internally but we're using internally as well we're using it internally to develop we're using it internally to uh collaborate and we think there's a very very long range long long runway for a product like this but it's really something that's foundational and the only reason we could get it out so quickly um with such richness is because of all the work has compounded over the past two years um we were the first to release a coding harness to the world months before cloud code uh and we've been building this uh discipline and intelligence within the company ever since then and it's allowed us to do things that other companies just haven't been able to do with the organizational structure including have having a more and more uh uh cohesive context and memory for for the entire company which i think was is probably the greatest manifestation of for us but also for other companies as we live to um to to build uh to build around this product as well um i think uh you know we're we're well along the the path of implementing these tools to help our organization move faster um and and now it's function of making sure that that same sort of magic we can deliver to all of our cash app customers and and sellers as well um and i think sellers are some of the most uh important and probably the most relevant uh in this next one because they're also looking for help with ai

and um i think we're one of the few that can really make it simple enough that people can use it and not have to think about it and it actually gives them time back instead of uh is a burden of learning we'll take our next question from a shareholder on x and jack this one's to you uh it's a two-parter on both buzz and open source so how does block plan to monetize its open source efforts such as buzz and goose and talk more broadly about open source strategy does open sourcing some of our ai initiatives limit how much they benefit block because they're public by definition uh it doesn't limit it i think it gives us a lot more information

um it gives us a lot more people who can actually contribute to the code we're already seeing ideas in the ecosystem in the community that we can integrate within buzz proper um the reason we build buzz as as i answered in the last question is to make ourselves more efficient uh and to remove our single points of failure on on on vendors that just haven't met the agentic age in the way that we'd like and in the way that we need and also how we know our customers specifically our sellers will want to operate their businesses operate their teams and build for themselves and alongside of us so there's a there's a huge menu of options that we can go down to monetize buzz we do intend to do so but we don't want to custom fit one too early without having a lot more information we're in a fortunate position where we can experiment with a number of models and then choose the right one that's going to like align all over incentives with our customers we've talked with very small businesses uh in in that regard and we've talked with some of the largest enterprises we can imagine as well and we think there's something meaningful there we do intend on the roadmap to offer full git hosting and code repositories we're gonna have a hosted option for teams that don't want to run infrastructure that's live today we think there's a lot we can do on token efficiency we're already model agnostic but much more to do there um and then as i as i said in uh one of my posts about buzz agents that can transact feels like a natural place that we can we can explore um but there's something that will fit sellers there's something that will fit larger enterprise and of course we're building this for ourselves to make us a lot more efficient and better.

Our next question comes from the line of Jason Kufferberg from Wells Fargo.

Hi guys, thank you. So just looking at the numbers here, I mean, for the past four or five quarters, you've beaten your quarterly guidance, not just for AOI, but really for gross profit as well. And this quarter you're raising the full year outlook for both metrics by more than the Q2B, which is obviously great to see. So just as investors contemplate the second half outlook, would it be fair to assume that some of the conservatism we've seen in recent quarters has been factored in and just any color on how to think about gross profit growth um at the segment level over the next two quarters would be great to help tune our models i know that uh the square comps get a bit easier and cash apps obviously get harder but any color there would be great thanks hey jason thanks for the question um let me first uh start by talking about the numbers and some of what we're seeing in real time across the business um and then talk about what we're seeing in each in each of our ecosystems and kind of the longer term uh opportunities to compound growth in the back half of the year and heading

into 27. first on the numbers obviously very strong quarter for us in the second quarter um you know 25 gross profit growth 65 uh just a diluted eps growth on a year-over-year basis what was encouraging for me to see was how broad based the strength was and we feel really good about the momentum that we've got as we head into the back half as a result you know if you look at cash app we were able to grow actives year over year and inflows proactive year over year at a nine percent growth rate and with that performance really flowing through numerous products from commerce to banking to lending from a square perspective we accelerated growth on a global GPV basis, on a U.S. GPV basis, and obviously on a gross profit basis, with some of the strongest growth rates we've seen in the U.S. since the first half of 2023 in three years, whether you're looking at U.S. food and beverage GPV or more broadly U.S. GPV, and continued strength in the other target verticals for us with larger sellers and mid-market growth over 20 percent and an international up 25% on constant currency basis. So that's sort of a bit of a look at the strength and what drove the strength in Q2, again, very broad based. And similarly, when we look at the third quarter, what we're seeing so far is, you know, consistent, strong performance at the data points that we track with square GPV growth in July, consistent with the strength that we saw the second quarter and continued healthy inflows per active and monetization rates and risk loss rates across our cash app business um so then you carry through um you know the run rates that we're seeing where that gets you is the 18 gross profit growth in q3 with continued margin expansion um and exiting the year um in q4 in that gross profit growth uh range of sort of that mid-teens growth rate which is consistent with what you know we've been sharing for some time now and since our our investor day guidance in last uh last november even as obviously as you noted we have we reached some of the tougher comps for a product like cash up borrow which was scaling you know dramatically in the back half of last year and as that growth normalizes as we look to the back half of this year so um coming now to some of the key drivers across the ecosystems for square you know we'd expect to accelerate gross profit growth in the back half of this year and that's on the back of both strong gpv growth as we compound the benefits of not only stronger product velocity but also our ramping distribution channels and also in the back of expanding our pricing and packaging initiatives that we rolled out towards the end of last year from a cash out perspective as we look to the back half of this year, as I noted earlier, we'd expect active growth in sort of the low single digit percentage range. And we believe we have far more room to continue to drive deeper engagement across, you know, commerce and lending as well. From a consumer lending origination volume perspective, we do expect to see normalization in the back half, but we believe we've built a much broader platform here from a lending infrastructure perspective that should be a driver of growth in multiple ways beyond borrow too um as we look to the back half and and to the longer term and then finally just as as we're talking about guidance of course uh we think continuously about efficiency and um profitable growth and as we look at how we've operated post the changes, you know, earlier this year, nearly six months in, we have built increasing conviction on our ability to shift our operating rhythms as an intelligence company with AI, you know, central to all of our workflows. And that that way of working ultimately drives improved efficiency over time and greater leverage to our business over time, which then, of course, gives us the opportunity to invest where we see strong returns. As I noted in my intro remarks, go-to-market neighborhoods, AI, these are opportunities for us to lean in where we see strong returns and as we build that room for ourself in the back half of this year and into next year.

Our next question comes from the line of Will Nance from Goldman Sachs.

Hi, thank you for taking the question. I thought I'd take advantage of Thomas being on the call here because memory costs and hardware have been very top of mind for a lot of investors and probably more relevant as the volume growth and new customer acquisition and seller keeps accelerating. So can you talk about the hardware and pricing environment that you all are seeing? How's it impacting the business? And could you help sort of frame the range of outcomes as we think about hardware costs on the business, your access to hardware, and talk a little bit about how, you know, blocks hardware strategy may differ from competition? Thanks for taking the question.

Hey, this is Thomas. Yeah, thanks for the question. This is definitely top of mind, especially memory. Typically, when we talk about hardware as a differentiator, most often it's in the context of our new products, right? Like in the very beginning, I've been able to come up with the Square original card reader, setting the bar for what point of sale could be with Square Register, and most recently with tags, creating magical payment wands. And while hardware expertise definitely allows us to differentiate on the product side, and I'm really excited about new products we have in the pipeline you know hardware is much more than that one area that i'm particularly proud of we don't often discuss is our supply chain and operations team over the years we've built deep expertise and gone deep into supply chain you know most companies have a relationship with their supplier but we're different in that you know we go deeper and we we have relationships with our supplier suppliers and for key and core technologies we go down to the supplier supplier supplier and not only does this allow us to build best-in-class products but it also enables us to manage supply in a very differentiated way. You know, thinking back to COVID, you know, everything was out of stock, you know, it's hard to find toilet paper. And one thing that I'm proud of is that we were the only company in our space never to go on back order. You know, fast forward today, hardware costs, specifically memory are top of mind for everybody. But because this goes so deep in the supply chain and we have really strong relationships with key suppliers, we actually identified this constraint coming middle of last year. And so since then, for the last year plus, both our engineering and operations team have been working to mitigate these. And this is why, unlike many companies, you haven't heard us talking about supply constraints or cost. Now, I do want to caveat that what's happening across every industry is unprecedented. And I think we've heard that our friends down in Cupertino called this a 100-year flood. And while I haven't been here 100 years, in my almost 30-plus years in this industry, I've never seen anything like this. So we can't say that we'll never be impacted. and we do expect our costs to go up over time just like everybody else. But we have a really good handle on the trajectory of costs and supply dynamics and we feel that we can manage this accordingly.

Our next question comes from the line of Darren Peller from Wolf Research.

Hey guys, thanks.

Look, it was great to see the acceleration in GPV to 13% global and 10% in the US. Can you just touch on some of the key drivers? I mean, we know NVA was converting well and I think it was up 17% last year. so just how's nba trending now where are you on your sales build and iso efforts and partnerships and then just as attached to that uh it was also nice to see the spread between gross profit and gpb narrow even without the tariff refund dynamic um do you still expect that that growth rate between gp and gpb and squared to grow in line with each other in the second half thanks guys hey darren thanks for the question um yeah so let's unpack the momentum we're seeing with gpv you know i think first fundamentally it all goes back to the compounding benefits of our progress

against our product strategy and shipping more products at pace and are expanding our distribution channels from a go-to-market perspective and what we're seeing is that those efforts are really resonating with with our sellers and with new sellers as well you know from a product perspective we launched a number of different uh products that really resonate for food and beverage sellers things like drive-through for qsrs and dozens of new features across the board from a go-to-market perspective we saw the fastest pace of self-onboard onboard nba fastest pace of growth since q2 of 2021, actually, which is really encouraging for us to see, in addition to ramping channels from a field sales perspective, from an ISO perspective, from a partnership perspective. And all of that leads to this acceleration that we've seen that's, I think, particularly notable in the U.S., but broad-based as well, with our strongest U.S. GPB growth rate since you know, in three years since Q2 23. And international performance also coming in strong, even with some of the FX headwinds at 25% constant currency. You know, I'd particularly call out the strategic verticals that we've been targeting with global food and beverage GPV up 20% year over year and the strongest US F&B growth we've seen since Q1 23. and mid markets also continue to be our fastest ramping segment also with growth over 20 percent and as I noted earlier a lot of that strength that we saw in Q2 carrying forward into July on the gross profit point yeah we were excited to see growth roughly in line and accelerating growth from a gross profit perspective but roughly in line with GPV growth I think fundamentally what underpins that gross profit growth is not only the strong, you know, sort of engine underneath it with compounding these gains in GPV, but things like continued software adoption growth and momentum in financial solutions driven by products like Square Loans, where we still have tremendous room for continued growth. Products like Cash App Card, or sorry, Square Card or our credit card that we're that we're ramping within our square ecosystem as well so the the broader suite of software and banking features continue to resonate with with existing sellers and new sellers alike we did have in the quarter a tariff reimbursement benefit of about two points that roughly offset a network remediation comparison from q2 25. so those two sort of if you will, one-time elements roughly offset each other by about two points this quarter. And we continue to expect Square gross profit and GPV to grow roughly in line with each other as we look at the back half of the year.

Our next question comes from the line of Adam Frisch from Evercore.

Hey guys, thanks for taking my question. The motion on Square is pretty simple in terms of better product with expanded distribution. But for Cash App, what gives you the confidence as you lap the huge borrow growth this year that you can continue to drive outsized gross profit growth in the next couple of years. We like to say it's more people using more products more frequently, but what's the playbook here for cash app growth? And then if I could just ask on the loss side, what was it in the quarter? Was it still around where it was previously and how do you expect that to trend? Thanks very much.

Thanks, Adam. Happy to take this question i'll give some context on kind of the durable growth of cash app overall first and then i can touch on the the lost rate question i think even though cash has evolved uh massively over the past you know decade plus i think our core approach to growth hasn't changed that much and i think that's largely because the just the addressable market uh is so massive uh we we see over 100 million modern earners uh in the us and we think that's going to be like the the fastest growing demographic over the next you know five to ten years i think still with our existing customer base we still have massive room to to deepen engagement obviously you know cash app card attach rate is pretty high uh but there's still you know a number of customers who are still peer-to-peer only and then increasingly we're seeing with products like neighborhoods uh teens and families tags this is giving us more of a right to win upmarket and actually expanding the the addressable market so our approach has remained the same which is really just focusing on the ecosystem and i think this is unique relative to some of the other players in consumer fintech where you know top line is coming from one or two different sources we think of the cash ecosystem in four parts uh there's our network based products our our banking and financial services products our commerce solutions and then bitcoin of course and i think we have massive runway across the board so on the network side we're continuing to invest in in network health and corporate appear neighborhoods I think is set to have a massive impact on cash app going forward and then continuing to push on on our managed accounts you 13 product as well as teens and families more broadly on the banking side still have a lot of room to go with with cash app green and also new products that we're calling internally like these essentials so things like launching cash app phone plans and then continuing to twist knobs and tune dials on on the borrow side and the retro side for commerce uh some really exciting things related to the card so afterpay on cash card pre-purchase uh just just became generally available a few weeks ago and then obviously the tags launched we've had a few viral moments um but that's a massive platform for us uh and continuing to push on distribution with cash at pay as well as as well as afterpay some some large merchants we've signed recently on the bitcoin side uh pricing decisions deliberate pricing decisions have actually been a headwind for us this year but that was a deliberate move to make sure that we're the you know the simplest and cheapest bitcoin exchange out there and i think that's proven really successful in terms of relative share gains versus others all of that is like the core ecosystem of cash app and then you can layer on some of the newer bets like how we're monetizing cash app score same thing for money bot new things that we're working on that are that are not public yet and i think all of these pieces are going to flow through the inflows framework pretty differently some of them will hit active some of them will hit inflows proactive some of them will hit monetization rate from an active perspective I think the biggest drivers in the coming months are really neighborhoods and our families teens and families products on the engagement driver's side and how we think about growing inflows I think it's really our focus on the modern earner and and spending tools for what it's worth cash card just turned ten years old a few weeks ago which is super exciting so a decade old, and we're still running GPB growth at more than 20% year over year, fourth largest debit program in the US. So overall, the way I feel is we have the most expansive product portfolio that we've ever had. And our job is to bring all the different pieces of this ecosystem together in the back half of this year as we head into 2027 and ensure we can maintain those strong, durable growth rates over time. And that's despite lapping the kind of meteoric growth in borrow. and I think I think we have a strong track record of doing this over the past decade plus. Amrita, do you want to just touch on the loss rates piece?

Sure. I presume that's a question on cash at borrow loss rates, which continue to be healthy. You know, we look at cohort level loss rates, as you know, and as borrower cohorts season, we generally see that repayment behavior improves and losses decline. That's just based on our underwriting and the rich you know first party data that we have that feed into our models more broadly i would say based on our consumer lending origination volume forecast and as i noted earlier the normalization of the growth rates and the maturation of the borrow cohorts we'd expect to to see year-over-year growth on transaction loan and consumer receivable losses to moderate as well through the remainder of 26. our next question comes from the line of Tim Chiodo from UBS.

Great. Thank you for taking the question. I want to shift gears a little bit. So a little bit of a unsung hero, if you will, with the SFS part in the shareholder letter. So two things that could help margins and maybe free cash flow. But you mentioned that SFS will start to take deposits, which could help with some of the funding for some of the loan products. And then also that SFS is also serving as effectively the acquiring sponsor bank, and it could start to support both Square and Cash App, which would effectively remove some costs, and I was hoping you could talk a little bit about SFS role across those two use cases. Thank you.

Hey, Tim. Yeah, you know, look, we think the capabilities that we're building here around banking with SFS are incredibly powerful, and we're really just at the beginning in terms of this journey that we're on. When I sort of step back and think about the strategic elements that SFS provides to us, I think there's three primary benefits. First, SFS gives us greater optionality when it comes to how we bring our products to market, whether through partners or through SFS, that ultimately provides us with greater resilience and redundancy. Secondly, it enables us to serve more customers and frankly expand our products. often at better economics. You've obviously seen, you know, how that's flown through from a borrow perspective, being able to bring borrow nationwide and improve from a variable profit perspective over this past year, such that it's a much more meaningful incremental growth opportunity for us for that product and potentially for future products down the road. And then third, it gives us a direct connection to our regulators which ultimately helps us build upon trust um and get you know great feedback along the way that as we're expanding new products over time um in terms of you know where we're entering with this next phase of growth for sfs we are expanding beyond lending and i think there's there's kind of two important milestones um as i look at where we are and where we're about to head that that i'm pretty excited about first deposit taking as you noted um we are expanding our capabilities there so sellers maintaining at least ten thousand dollars in square savings are now eligible to earn a three and a half percent apy that's eight times the national average which attracts obviously sellers bringing more of their business to block it ex you know deepens our relationship um expands retention possibility and expands our deposit base further so as we grow balances we can ultimately build a stable base here that's relatively low cost deposits that then helps us fund future lending products at a lower cast cost of capital um and so you know near term we're gonna we continue to externalize um those lending originations through warehouse facilities and other funding sources. But over time, you can expect deposits through SFS to become a much bigger part of how we fund those lending originations. And it's far more efficient from a capital and returns perspective. And then secondly, as you noted, we're now building acquiring capabilities into SFS. And in June, we had, you know, a new milestone for SFS as we processed our first square acquiring transactions. Over time, we can gradually migrate more of those acquiring transactions into both Square and Cash App, but that is a multi-year endeavor as we bring more of that processing infrastructure in-house with, again, the primary benefit to us being increased resilience and redundancy. So all that to say, Tim, we agree with you.

We're super excited about SFS and the opportunity you know to expand far beyond this first chapter of lending as we look at deposits and acquiring next and in the much longer roadmap beyond that we'll shift to our next question from shareholder on x and this is a couple of questions that we've amalgamated but this is over to you owen what updates can you share on neighborhoods including a status update on the broader rollout of the product sure thanks matt i think at this point we're extremely confident that we found product market fit with with neighborhoods and now we're scaling incredibly quickly so annualized seller GPB on the platform across the the 1 billion dollar threshold in June which is up 220% year over year and then new sellers that were onboarding onto neighborhoods was 8x in July what it was in March and then the the great part from the from the product perspective is as we've ramped we've seen really really strong and consistent in data. So spend from followers reaches about 10% of a seller's GPB in three quarters on average, just like a really meaningful share of GPB. And then we're seeing really strong conversion rates just across every funnel that we're tracking, whether it's buyer enrollments per location or signups versus neighborhoods impressions or claims per location, the list goes on. So we feel really good about the product. And now in the coming weeks and months, we're focused on just massively accelerating the distribution and the go to market on the seller side. We're confident in the performance. I think the auto enrollment motion that we talked about last earnings is working really well. And then of course, there's an incredibly strong correlation between the number of sellers who are on the neighborhoods platform and then the number of buyers who are engaging via cash app. On the product side, a few additional things that we're focused on as well. We are testing a motion that's aimed at increasing density. So this is a combination of auto enrollment plus also kind of dedicated outreach and in-person time from our account management team, which has been really successful with more upmarket multi-location complex sellers. Also, it's been interesting just kind of understanding how critical it is for the employees at a given square seller to get bought in and fully educated on the on the program. And so we've started experimenting with various incentive programs to kind of get to a world where, you know, everyone who's working at a square cellar where neighborhoods is turned on becomes an advocate of the neighborhoods program and ultimately using using Cash App. We're also going to close out the work where where we're making neighborhoods work for for every hardware product. And we'll be launching a tab at the top level in Cash App that shows on kind of a like a map view geographic basis all of the all the merchants that that you can follow and order ahead and engage with so feeling really really excited about neighborhoods to me my honest reflection is it feels like the early days of of peer-to-peer where we have this proprietary onboarding funnel we're seeing the numbers starting starting to inflect in a meaningful way it's pretty clear that this is going to reach massive scale and then ahead of us we have a huge opportunity to drive, you know, deeper engagement and deeper monetization.

Our next question comes from the line of James Friedman from Susquehanna.

Thank you, Katie. Thomas, another hardware-related question. We'd love to hear how Cash App Tags, Cash Tags is doing. For example, does it lead to increased engagement or changes in ticket size? What sort of cohorts are embracing it? Any perspective on Cash Tags would be helpful. Thank you.

Yeah, thanks for the question. We're super excited about tags um we believe we created the next new viral harbor product yeah typically and you know when you're developing any product you're excited in the development process but when when i first got a prototype of of the wand and i took it to a seller for the first time and just seeing the reactions you know the reaction of the cashier the people in line the cashier actually pulled over another cashier to show it to them it was pretty clear we're on to something it reminds me in a lot of ways of early square days where you know the first time you swiped your card on a on a phone and signed uh signed your name uh with your finger and got a got an email receipt is pretty magical and this feels in a lot of ways uh very similar um now i'll get into uh some of the details of your question but first i wanted to level set a little bit on you know why and how we're doing uh tags you know as ellen mentioned cash up card launched 10 years ago and when we launched it we took a pretty different approach and that was around customization you know we offer lots of different colors lots of different materials you know we have a glow in dark clock card we have a tortoise card and then and customers can personalize they can write on it then we have stamps and it can really uh make these one of one and and our customers love it especially younger audiences um one in five teens have a cash app card today um but the biggest problem with the card form factor and then i see that you know when i take my cash app card out and i have a tortoise card people comment on it they ask me where i got it all the time but the problem is is cards are stuck buried in your wallet 99 of the time and so we wanted to do is we wanted to take the best parts of our cash app card and just take it to the next level and so we did is we we developed tags and tags it's a module that has an nfc chip and antenna and some other things but it's fully sealed waterproof you know we put it you can put it through the washer and dryer hundreds of times uh it has no battery and the great thing is with this module you can put it into pretty much anything and and once you put it into something that thing turns immediately into a cash app payment device so we're pretty excited about that you know earlier the summer we launched three form factors we launched our wand a mini card and our heart and the reception i mean exceeded expectations we sold out much quicker than we thought you know the second one drop uh sold out in just over 30 minutes and the really exciting thing is we did this all with zero marketing this was all viral and today we have over three million people who have asked to be notified for the next drop so what's next so right now we're ramping production of those three models that we just we announced and in the coming weeks we're going to make that more generally available and then later this year and early next year we have lots of new tags coming some fun new color ways of the existing skews but also some different form factors we're going to making more key change with some other pretty interesting form factors and materials we're playing with that i'm really really excited about but not just first party products one of the things we're also doing is working on collabs and partnerships and what's exciting about the partnership space is that allows us to reach other demographics that already have a relationship with a given brand right and I was to your point like we can expand demographics through partnerships really well so again I'm really really excited about the reception so far of tags and I just say like if you don't have one yet I recommend getting a wand and when you I mean you need to see it and feel it to really understand and when you pay for it for the first time you see others reactions and then i think you'll you'll get uh what we're on to i would just i would just add on top of this and broaden it a little bit like i think tags is obviously an incredible and and super innovative product and we were able to get it to market like incredibly quickly especially for a for a hardware product but i think that motion is just reflective of how

development at block has changed especially over the past six to 12 months i think that the flow through from ai tools is just making it so that we can ship higher quality features and products to our customers at a higher clip those things you know used to conceptually be at odds with each other and it's just not the case anymore uh given given how the ai tools are flowing through at this point at block ai is involved in basically every single production code change or production code review um code changes per engineer is up 150 since the start of the year square just for for reference we shipped 130 features in the first half of of 2026 that's up more than 3x relative to the the first half of 2025 and i think all of that is because of the foundation and the the investment in ai tools over the past three years whether it's goose or contributing to the mcp or it's buzz or it's everything else that we've built internally and so now i think that you're really seeing that start to flow through in terms of of shipping things to customers tags is a great example as thomas went through i think the acceleration in neighborhoods is a great example square credit card just reached over a billion dollars in annualized spend um you know manager bot and money bot are ga'd after pay on the cash app card is ga'd stable coins on cash app for ga the list goes on so i think just fundamentally that that thesis and narrative around high quality

high velocity that we've been talking about for for the past two to four quarters um we're just we're seeing it come to life in q2 our next question comes from the line of nick cremo from barclays hey thanks for taking my question i wanted to ask on blocks ai cost strategy with your model agnostic approach as you lean deeper into ai as an organization given token costs are becoming an important topic and separately it would be helpful to hear how you're thinking about ai monetization over the near to medium term with manager bot and money bot thank you hey nick Thanks for the question.

Maybe I'll start off on the cost strategy. And Owen, you can chime in on manager bot, money bot monetization. You know, first I'd say, look, we see the headlines. It's obviously a major one. And we think around costs for AI. And we think relative to the industry, we feel we're pretty well positioned here for a couple of the reasons, including one that you noted around the model agnostic builds for Goose. You know, I'd say more broadly, our budgets obviously are going up but we're focused on a strategy that ensures returns from those budgets and I think what you just heard from Owen on product velocity is that we are seeing tremendous speed and quality come through in terms of development capabilities using these tools and even back of the house in terms of how we run the company and our workflows now from an intelligence perspective but the strategy from a cost perspective for us starts with intelligently routing our workloads, you know, being efficient in how we think about compute and leveraging multiple models, including open source models where appropriate. And then obviously the technology is continuously advancing. So we evolve our strategy, you know, as we see those advancements as rapidly as week to week or month to month. We don't think the right answer is to constrain developer velocity or productivity using these we think the answer, as I noted, is really just to be thoughtful and intentional about how we deploy the tools. And we know that there's, you know, it's an evolving, you know, paradigm, and it's one where we feel we've built a strong foundation and have identified a number of ways to improve efficiency over time, but there's more work to do for us and for many others. Maybe I'll just quickly note, I think, the two core capabilities that we're building that are truly differentiated here especially as we think about the efficiency returns and cost component of our ai approach so first as you noted nick you know goose is model agnostic and we think this is a component that we foresaw you know some years ago that's really important it means that we're not locked into a single provider's capabilities or pricing structure and that's true for anyone obviously who would use Goose. You know we are seeing sometimes the leading open source models are better today than what existed six months ago and therefore we have the ability to leverage you know whatever is the frontier model from an intelligence or cost perspective based on what we've built. You don't need the most leading edge model now for the vast majority of knowledge work. And so we can then route based on what we're seeing as the advancements play out. Then secondarily, what I'd say is that from an engineering perspective, we've built an internal evaluation system that is scoring each model on a number of metrics from quality to cost based on our real production data. And so that means that we're continuously evaluating on a task level basis all of the new models as they're released and as pricing evolves and and of course we're all seeing extremely powerful models now become lower priced which then gives us the opportunity to build the right efficiency approach into each of our workflows where we can see a lot of our work get done with older models which are increasingly powerful turn it to you Owen.

Yeah, happy to touch on monetization for our AI products. I think it's pretty clear that we have an opportunity to monetize ManagerBot, MoneyBot and Buzz. I think Jack talked about on the Buzz side and how we've had conversations with sellers and businesses of all sizes from, you know, the small businesses that use Square all the way up to some of the biggest companies in the world. And I think there's a really clear willingness to pay there. I think on the ManagerBot side in particular, it's a pretty interesting opportunity for us. We've been testing an updated version of ManagerBot that's capable of some of the most complex and also some of the most time consuming tasks that our sellers are faced with. I've talked to a number of them and there's a really, really clear willingness to pay, especially if you think about some of these tasks like scheduling or managing inventory or what have you. I you could think about building manager bot into one of our sas tiers you could think about charging directly for manager bot you could think about more like usage based pricing especially for enterprise sellers who are more used to to that sort of model right now we're we're focused on the quality of manager bot we're focused on distribution and we're focused on making it as useful as possible as a as a partner for for for these businesses um i think the one other thing that i would add is that i wouldn't just think about the first order monetization for for something like like manager bot i think fundamentally like when when sellers win we win uh it's good for them it's good for block it's good for the the economy frankly and so if we can help a seller make like 10 better decisions or or increase the chances that they don't go out of business by 10 that's a win-win and obviously from a from a business perspective that ends up flowing through same-store growth, retention, and ultimately GPV overall.

We'll take our final question that was submitted via X. So this one is for you, Jack. Blog's mission is centered around increasing access to the economy.

How are you balancing investment and deepening that core mission with newer AI initiatives like Buzz? um i think the only way we've been able to like really serve more of the economy and increasing access is through uh the technologies behind what you know of as ai today like we started the company with a pretty rich machine learning and deep learning discipline because we needed to understand and model risk and fraud and that went on to us but using the same tools for lending and these these technologies have always been a pretty deep part of our DNA and something that we have benefited from at a company level but also like as we pass this on to our to our customers I think buzz It does take it to a different level. I've been talking with a lot of sellers recently, and one of the things that is common amongst all of them is that they all talk to their staff. They're all frustrated with the tools that they have available to them. They're all interested in building. They are using AI tools today, and they're looking for something that's just built in, batteries included, and they can use right away to build up their business, grow their sales. help manage their employees, help manage the operations. And that's a perfect place for Buzz to fit in. But we think there's so much more. And a lot of what building comes down to is really building for the economy. And I think that hits our purpose directly. And, you know, I believe we're going to be on the frontier of this. And we're super excited about what people are doing with it already.

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