Bob's Payment Stock Substack

Long post incoming… There was a recent post on $XYZ on reddit with a lengthy reply that highlighted a lot of skeptical points about Block. I tried addressing on reddit but don’t have proper posting rights on the forum (or I’m a reddit noob and didn’t do it right, you be the judge). In any case I thought the points were worth addressing in some forum, so here it is. Onto the rebuttal to the rebuttal… Jack is, in my opinion, a design and network-structure savant. I spent a decade investing in fintech before joining Block. I haven’t met anyone else who sees the world or designs systems the way he does. His ability to create simple interfaces, build networks, and structure ecosystems is unmatched. He is also the only person who has founded and been CEO of 2 S&P 500 companies. That is an extraordinary accomplishment. He seeded Cash App and created the environment for its success and was early in recognizing Bitcoin’s potential. I think Jack’s track record is really under-appreciated. On capital allocation, I don’t think anyone would argue we’ve maximized the value of Tidal yet. But it’s also not a meaningful investment today after scaling the business down last year and the team has some cool stuff in the hopper. More importantly, capital allocation cuts both ways. Anyone who criticizes Tidal should also acknowledge that scaling Cash App was one of the best capital allocation decisions in the history of the industry. Scaling the P2P network from scratch was expensive and the team faced internal and external pressure early on to cut spending back. Had leadership listened, Block would have missed one of the most successful “act twos” in fintech history. People did not believe in Cash App in the moment. Those people were wrong, and now Cash App is more than half the gross profit of Block. That was capital allocation and execution. FWIW, I hear skepticism about Proto that echoes the skepticism Cash App received 8–9 years ago. As Square has grown up market, we've done so profitably, with 5-6 quarter paybacks and marginal ROIs of 250%+. We’ve gone from 0 to ~150 field sales people over the past year to move up market and we’re moving up market fast while generating healthy LTVs. We’ve grown Cash App gross profit at a 21% CAGR over the past ~2.5 years and guided to growing Cash App gross profit at a high teens compounded growth rate over the next 3 years. Last quarter we grew actives to 58 million and guided to growing at a low single digit rate going forward. The breadth of our ecosystem across P2P, commerce tools, banking, investing, savings, borrowing, and bitcoin is unmatched in my opinion in the industry. As of October we had 8.7M primary banking actives in Cash App. That is before any benefit from our new Cash App Green status program and before we launched any lending functionality aimed squarely at this audience. When we bring an active from P2P to Primary Banking status we see ~10x increase in gross profit per active. We have a lot of runway here. Afterpay BNPL losses remain around 1% of GMV (there was a stat in the post that 41% of BNPL is paid late which is not at all reflective of our data). Cash App Borrow has held loss rates under 3% even while scaling massively . In aggregate our consumer lending volume grew about 50% last quarter, margins as a % of originations have stayed stable through time at about 2%, and return on invested capital (ROIC) was 28% in Q3. I do not think there is another fintech platform with that combination of growth, margins, risk loss stability or returns on capital. If you find one let me know. Our proprietary data and our incredible team of engineers and technologists in risk drive our ability to lend effectively to our customers. As Nick Molnar said, lending is a superpower at Block. The data bears this out. Our 3 year strategy is quite clear in my eyes: We plan to expand Square as a standalone ecosystem by investing meaningfully in new distribution channels, including field sales and partnerships, to move up market and grow internationally. We plan to do so while growing gross profit roughly in line with GPV, and we’ll increasingly power Square sellers through Managerbot. We plan to grow Cash App actives and deepen engagement with our Primary Banking strategy. Driving faster product innovation into a larger and larger actives bases drives our expectation for strong growth at scale (Cash App Card is already the 4th largest debit program in the US). We plan to connect Square and Cash App through our Neighborhoods product, and use each part of the Block ecosystem to drive strength in the other. We haven’t executed here in the past, I believe deeply in the product structure that exists to connect them now. We plan to drive all of this with AI functionality for sellers (Managerbot) and consumers (Moneybot) built on our proprietary internal agentic AI platform goose. I’d encourage you all to play around with Moneybot in Cash App in the coming weeks/months as all our customers get access to it. AI is going to be the next major shift in how we invent intuitive interfaces for our customers. I haven’t seen anything like Moneybot out in the market. I think the backward looking frustration is reasonable. But we also have a forward looking plan that I deeply believe in that calls for us to grow gross profit at a mid-teens compounding rate over the next 3 years while we expand margins, driving >30% Adjusted Operating Income growth and >30% Adjusted EPS growth. There aren’t many companies at our scale delivering that growth profile. Now it’s time to execute.