Block shares tumble after Q3 Square volume-profit spread disappoints

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The Good Brigade

Block (XYZ [https://seekingalpha.com/symbol/XYZ]) stock slid 9.7% in Friday trading as investors digested the fintech's earnings, which included a compressed spread between Square's gross purchase volume ("GPV") and gross profit ("GP") due to changes to a processing relationship with a third party.

Square GPV of $67.2B in Q3 rose 12% Y/Y, while its gross profit of $1.02B increased only 9% Y/Y. Block management had previously said its decision to "increase operational flexibility at a processing partner" would "modestly" increase processing costs.

"This was an approximately 2.6 percentage point headwind [https://seekingalpha.com/article/4839842-block-inc-xyz-q3-2025-earnings-call-transcript]to Square gross profit in the third quarter, which we expect to lap in the second quarter of 2026," Block Chief Financial Officer Amrita Ahuja said during the company's earnings call on Thursday.

"A combination of changes to an existing processing relationship with a third party, which pressured the yield between seller volume and gross profit, along with adjusted operating margins that just came in line with expectations, clouded a positive picture of accelerating gross profit growth that will continue into 4Q25," Citi analyst Bryan Keane wrote in a note to analysts.

Evercore ISI analyst Adam Frisch thought that effects from the third-party processing issue had been well telegraphed before the Q3 report. "But some viewed it as overly aggressive pricing - which management flatly refuted on our follow-up call and is supported with these disclosures," he wrote in his note.

BTIG's Andrew Harte saw the 11% after-hours stock decline as an overreaction as "we thought the spread should have been anticipated given Square's guidance from last quarter called for low-double-digit GPV and high single-digit GP."

He added: "the current stock price reaction is overlooking Block's strong top- and bottom-line beat and raise during 3Q." Harte maintains his Buy rating on the stock.

Evercore's Frisch keeps his Outperform rating on the stock. "On that disconnect, we are aggressive buyers on any weakness as the quarter aptly demonstratedcontinued turnarounds in both segments, and the 4Q guide suggests that momentum should continue," he wrote.

Citi's Keane concludes: "We believe the company will highlight solid 2026 guidance and long-term guidance revolving around the rule of 40 at the upcoming Investor Day on Nov 18th. We remain Buy rated with a $105 PT."

The SA Quant system [https://seekingalpha.com/symbol/XYZ/ratings/quant-ratings]gives Block (XYZ [https://seekingalpha.com/symbol/XYZ]) a Hold rating, while the average SA Analyst rating [https://seekingalpha.com/symbol/XYZ/ratings/author-ratings] and average Wall Street rating [https://seekingalpha.com/symbol/XYZ/ratings/sell-side-ratings]is Buy.

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* Block stock sinks after Q3 earnings miss, expenses disappoint [https://seekingalpha.com/news/4517465-block-q3-earnings]