Block Inc. (NYSE:XYZ) posted one of its strongest quarters in years on August 5, then watched its shares fall roughly 6% the next day. Adjusted EPS came in at $1.02, well ahead of the $0.87 Wall Street expected, and the company raised its full-year guidance across the board. Investors, it turns out, cared more about one soft number than a pile of strong ones.
The headline story is what AI has done to Block's expenses. Back in February, the company cut its workforce by 40%, arguing that AI tools were making engineers more productive and reducing headcount needs. That bet appears to be paying off: code changes per engineer have climbed 150% since the start of the year, and management frames the resulting efficiency as durable rather than a one-time trim.
Second quarter gross profit rose 25% year-over-year, with adjusted operating income margin hitting an all-time high of 27%. The rest of the business backs up the efficiency story with actual growth. Square's US gross payment volume accelerated to its fastest pace since 2023, helped by more than 200 active ISO partners driving over 150% quarterly growth in new sellers from that channel.
Cash App gross profit grew 31%, with consumer lending originations up 59% and commerce enablement volume up 17%. New launches like Cash App Tags, Cash App Mobile, and the general availability of Afterpay Pre-Purchase on Cash App Card add fresh reasons for users to stay engaged, and management is preparing to scale its Neighborhoods program, which connects Square sellers to Cash App customers, more aggressively in the second half of the year. The number that spooked investors was Cash App's monthly transacting actives, which grew just 3% year-over-year in June, a deceleration from the prior quarter's pace.
Management is now guiding for only low single-digit actives growth for all of 2026. That is a meaningful slowdown for what has historically been Block's flashiest growth engine, and it suggests mobile payments have gotten more competitive. There is also the matter of timing.
CFO Amrita Ahuja sold 8,971 shares on the same day as the earnings report, a transaction worth about $770,000 executed under a Rule 10b5-1 plan adopted back in March. The sale trimmed her direct stake by only about 2%, leaving her with 454,275 shares, but insider selling around an earnings date tends to draw attention regardless of the paperwork behind it. Layer that on top of a stock still down more than 75% from its 2021 peak, and it is easy to see why traders reached for the sell button first and asked questions later.
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