Key Takeaways
- Shopify shares fell 10% after its third-quarter GMV of $119.1 billion, up 29%, came in slightly below what analysts expected.
- Shopify’s merchants are still growing their sales fast, which is a good sign for Block’s Square, whose payment volume grew 13% last quarter.
- Block guided to $3.13 billion of third-quarter gross profit, up 18%, and $1.02 of adjusted EPS, and slowing growth in Cash App’s lending is the main risk.
- At 17x forward earnings, below its three-year average, Block doesn’t need a blowout quarter. It needs Square’s growth to hold and loan losses to stay in check.
Shopify (SHOP) shares fell 10% this morning after its third-quarter GMV came in slightly below what analysts expected. Block (XYZ) reports its own third quarter after the close tonight.
Both companies make their money on small and midsize merchants’ sales and payments. That makes Shopify’s quarter the freshest read we have on Block’s Square business, and I think it’s a better read than Shopify’s drop suggests.
Shopify’s merchants are still spending
Shopify’s merchants sold $119.1 billion of goods through its platform in the third quarter, up 29% from a year earlier. Merchant solutions revenue grew even faster, up 35% to $2.91 billion. Total revenue rose 32% to $3.74 billion, in line with expectations.
Management also expects revenue to grow at a low-thirties percentage rate in the fourth quarter. That’s a bit ahead of the roughly 30% analysts had expected going in.
So Shopify missed against a very high bar. Its merchants are still selling far more than they did a year ago, and that’s the part that matters for Block.
Square’s sellers aren’t growing nearly that fast. Square’s gross payment volume (GPV) grew 13% to $72.8 billion in the second quarter.
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Square’s sellers are a different crowd
Most of Shopify’s GMV comes from online orders. Square’s sellers mostly take payments in person, at the counter. So Shopify’s quarter only tells us part of what to expect from Square.
Square’s own numbers are the better guide, and they’ve been heading the right way. U.S. volume grew 10% in the second quarter, the fastest since the second quarter of 2023, and international volume grew 28%. Square’s gross profit also grew 13%, though a one-time tariff refund added about 2 points of that, roughly offsetting a one-time item in the year-ago quarter.
That sets the bar for Square tonight: GPV growth that holds at 13% or picks up, with gross profit keeping pace without any one-time help. Before the second quarter, Square’s gross profit had grown slower than its volume for three quarters in a row.
Cash App is separate
Shopify can’t tell us much about Cash App, and Cash App is the bigger business. Its gross profit grew 31% to $1.97 billion in the second quarter, against $1.16 billion for Square, as consumer lending originations jumped 59% to $18.9 billion.
That growth is set to slow. Management has said slower lending growth in the second half would slow Cash App’s gross profit growth, and this quarter is up against 134% growth in Cash App Borrow originations a year earlier. Morgan Stanley downgraded Block on Oct. 28. It expects Borrow originations to slow as Block shifts to longer loans, and it thinks those loans could bring higher credit losses.
The losses are the number I’d watch most closely. Block’s transaction, loan and consumer receivable losses nearly doubled to $585 million in the second quarter, or 18% of gross profit, up from 12% a year earlier.
What Block has to show tonight
Block guided to third-quarter gross profit of $3.13 billion, up 18%, adjusted operating income of $875 million, and adjusted EPS of $1.02. Analysts are right there with it: the consensus from 32 analysts is $1.03 of normalized EPS for the quarter.
Analysts also expect Block’s earnings to keep climbing well past this quarter, from $4.05 per share this year to $6.48 in 2028:
Shopify’s report shouldn’t move those estimates. Block’s could, since the years ahead depend on Cash App growing even as its lending slows.
Block’s gross profit has climbed from $2.27 billion to $3.18 billion over the last eight quarters, with just one dip:
The $3.13 billion guide is a touch below the second quarter’s $3.17 billion, so growth slows to 18% from 25%. Block beat its gross profit guidance in both quarters so far this year.
Block isn’t priced for a blowout
Going into tonight, Block trades at 17x forward earnings as of Monday’s close. Its five-year average is 37x, but the 153x it hit in November 2021 skews that. Its three-year average is about 20x, and its low over the past five years was 11x in April 2025:
Bottom line: Shopify’s merchants are still spending, and that’s good news for Square. The bigger question for Block tonight is Cash App. If lending slows without losses climbing as a share of gross profit, this multiple looks cheap for the earnings growth analysts expect.
Of course, we won’t see the full picture until Block gives its 2027 outlook with its fourth-quarter results early next year. That’s when we’ll find out how much of the savings from cutting more than 40% of its staff Block actually keeps.
So what is Block stock actually worth?
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