Block Inc To Hit 'Rule Of 40' By 2026 Despite $70 Million Party, Says JPMorgan

Core Viewpoint - Block Inc.'s third quarter results were mixed, but JPMorgan analyst Tien-tsin Huang maintains an Overweight rating with a $100 price target, believing the company is on track to achieve the Rule of 40 by 2026 [1][6]. Group 1: Financial Performance - The third quarter showed a blend of momentum and margin challenges, including a $70 million event impacting profitability [2]. - Cash App's gross profit increased by 24% year over year, a significant rise from 16% in the previous quarter, driven by improved monetization and a 134% increase in Borrow originations [3]. - Square's gross profit grew by 9%, with Gross Payment Volume (GPV) up 12%, slightly exceeding forecasts despite higher processing costs affecting margins [5]. Group 2: User Metrics and Growth - Monthly transacting actives for Cash App rose to 58 million after six consecutive quarters of stagnation, with primary banking users reaching 8.3 million in September and an additional 400,000 in October [3][4]. - Huang noted that the growth flywheel for Cash App, encompassing Borrow, banking, and user engagement, is gaining momentum [4]. Group 3: Market Outlook - Despite the $70 million event affecting quarterly optics, JPMorgan believes Block's ecosystems are accelerating, user metrics are improving, and margins will normalize as temporary challenges dissipate [6]. - The company is expected to face a non-linear recovery, but the right conditions are believed to be in place for future profitability and operational discipline by 2026 [6].