Strong Cash App Momentum Drives Favorable Outlook for Block (XYZ)

Cash App, a segment of Block Inc. (NYSE:XYZ), is emerging as a major catalyst for the company's growth in 2026, with lending operations playing a pivotal role in shaping management's outlook for the year. The company has recently taken steps to expand its lending reach by opening up the Cash App Score for external lenders through a partnership with Nova Credit's Cash Flow Intelligence Platform. This development has the potential to monetize the company's data infrastructure and generate additional revenue streams.

In the second quarter, Block surpassed its prior guidance, reporting $3.17 billion in gross profit and $864 million in adjusted operating income. Revenue increased by 9.3% year-over-year, reaching $6.62 billion, while gross profit expanded by 25% year-over-year and the company posted record 27% adjusted operating margins. Adjusted EPS came in at $1.02, marking a 65% year-over-year growth.

The impressive second-quarter performance was driven by strong consumer spending, a 31% year-over-year increase in Cash App gross profit, and a significant expansion in consumer lending through the Cash App Borrow feature. Financial Solutions reported gross profit growth primarily attributable to Cash App Borrow, reflecting a growing trend of users utilizing Cash App for short-term credit financing instead of just savings or payment purposes.

Cash App's lending business has been growing at an accelerated pace compared to the overall platform, with a 59% year-over-year jump in origination volume and a 17% increase in commerce enablement volume. This growth has led management to raise full-year guidance, with projections of gross profit above $12.5 billion and a 28% adjusted operating margin, alongside an expected 70% growth in adjusted diluted EPS.

While the lending engine driving this growth provides strong margins, it also concentrates risk, which could pose challenges during economic downturns. Rising loss rates in a downturn could negatively impact growth and the company's valuation multiple, given that much of the recent profitability improvements have been tied to loan performance. Therefore, monitoring delinquencies and charge-offs would be crucial as Block's lending book is tested at this scale for the first time.