Block Inc (NYSE:XYZ) could see higher gross profit into 2027 from changes to its Cash App Borrow loans, according to J.P. Morgan. The firm made the case in a note ahead of the company’s third-quarter results, due Tuesday, after market close.
Cash App Borrow is a small-dollar loan product inside Block’s Cash App. The loan term is moving from four weeks to six weeks, and the rate from about 5% to 7.5%. The analysts expect fewer loans to be issued under the new structure. They also expect each loan to earn more. Gross profit is revenue minus the direct costs of providing a service.
Gross Profit Upside
J.P. Morgan said it that gross profit could be flat in its base case or “notably accretive” in a more optimistic case, depending on how many loans Block issues.
J.P. Morgan’s estimate for overall transaction and loan losses stays largely unchanged at about $580 million, compared with a Street estimate of $560 million. The analysts acknowledged a wide range of outcomes. They wrote that they “remain confident XYZ can manage losses with flexibility to drive gross profit upside by raising limits if they choose to do so.”
Earnings Expectations
J.P. Morgan and Street estimates for the third quarter match Block’s guidance. Both show gross profit growth of 18% and an adjusted operating margin of 28%. Consensus expects about 12% growth in Square gross payment volume, down from 13.4% in the second quarter. Block described spending growth trends in July and August as stable.
2027 Outlook
Block has occasionally given preliminary expectations for the following year with its third-quarter results. J.P. Morgan and Street estimates both assume 15% gross profit growth and a 31% adjusted operating margin for 2027. The firm’s adjusted earnings per share estimate is $5.46, which implies 34% growth. The Street estimate is $5.25, or 30% growth.
The firm cited product launches including Square Kiosks, Dessa and Buzz as support for its view.
XYZ Stock Price Activity: Block shares were down 0.29% at $74.66 on Wednesday, according to Benzinga Pro data.
Photo: Piotr Swat / Shutterstock
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