Block reported Q2 2026 after the close on August 5. Total net revenue was $6.62B, up 9.4% year over year. Gross profit was $3.17B, up 25%. Adjusted operating income was $864M, up 57%, at a record 27% of gross profit. Adjusted EBITDA was $1,169M, up 31%. Adjusted diluted EPS was $1.02 against $0.62 a year ago, up 65%. Full-year guidance went up: gross profit to $12.51B, adjusted operating income to $3.47B, adjusted EPS growth to 70%.
We previewed this print on July 31 with one thesis: the AI-efficiency story, where profit grows roughly twice as fast as gross profit after the early-2026 layoffs, faced its next checkpoint. It cleared.
The call, graded
| What we said | What the print says |
|---|---|
| Profit growing twice as fast as gross profit | Confirmed, and then some. Adjusted operating income +57% against gross profit +25% — 2.3x. |
| The efficiency story is the whole rebound | Held. Adjusted operating margin hit a record 27% of gross profit; adjusted EPS grew 65% on 25% gross-profit growth. |
| Q2 is the checkpoint | Guidance raised on all three lines, which is the stronger version of passing it. |
The Rule of 40, recomputed — and why it reads low
| Quarter | Net revenue | Revenue YoY | FCF | FCF margin | R40 |
|---|---|---|---|---|---|
| 2025 Q2 | $6,054M | −1.66% | $343M | 5.67% | 4.01 |
| 2025 Q3 | $6,115M | +2.33% | $1,400M | 22.90% | 25.23 |
| 2025 Q4 | $6,252M | +3.63% | $580M | 9.27% | 12.90 |
| 2026 Q1 | $6,057M | +4.94% | $935M | 15.44% | 20.38 |
| 2026 Q2 | $6,620M | +9.35% | not yet published | — | — |
On our house definition — year-over-year revenue growth plus free-cash-flow margin — Block has spent the last year between 4 and 25. The quarterly cash-flow line for Q2 has not been published yet, but the growth half is 9.35%, so even a very strong cash quarter lands the score somewhere in the twenties.
A company whose gross profit grew 25%, whose operating income grew 57%, and whose EPS grew 65% scores in the twenties. Something is wrong, and it is not the business.
What is wrong is the denominator
Block's "total net revenue" includes bitcoin sold to Cash App customers recognised gross — the entire sale proceeds run through revenue, against a cost of revenue that is nearly all of it. That line has a gross margin of roughly two percent and it is large enough to dominate the total. Everything Block actually monetises — Square's seller economics, Cash App's financial services — sits inside the difference between revenue and cost of revenue.
You can watch this happen in the gross-margin series, which has done nothing but climb:
| Quarter | Gross margin |
|---|---|
| 2023 Q3 | 34.11% |
| 2024 Q3 | 37.93% |
| 2025 Q2 | 42.13% |
| 2025 Q4 | 46.16% |
| 2026 Q1 | 48.24% |
| 2026 Q2 | 47.89% |
Fourteen points of gross margin in three years. That is not operating leverage; it is a mix shift away from a pass-through line that never should have been in the growth calculation. And the Rule of 40, computed the standard way, reads that improvement as weak revenue growth — the exact opposite of what it is.
Block reports on gross profit, guides on gross profit, and compensates on gross profit. It is right to. On that basis growth is 25%, and a 27% adjusted operating margin on top of it puts the company comfortably over the line.
Which makes this the perfect companion to Shopify
We published Shopify's Q2 hours ago, and the two are exact mirrors.
| Revenue growth | Gross profit growth | Gross margin | House R40 | |
|---|---|---|---|---|
| Shopify | +33.6% | +31% | 47.77%, falling | 51.85 |
| Block | +9.4% | +25% | 47.89%, rising | ~20s |
Both companies now sit at almost exactly the same gross margin, arriving from opposite directions. Shopify's score is the best in five quarters while each revenue dollar buys less gross profit than the one before. Block's score is in the twenties while each revenue dollar buys dramatically more.
The metric this site is named after is measuring the same thing in both cases — revenue growth plus cash conversion — and in both cases the thing it cannot see is the one that changed. That is not an argument against the Rule of 40. It is an argument for reading it next to the gross-margin line every single time, which is why we store both.
What we would use instead, and what it costs
Substituting gross profit for revenue in the growth half would put Block around 25 + its cash margin, and would leave Shopify roughly where it is. It would also make the score incomparable across the ~64 companies we track, because most of them do not carry a large pass-through line and the two definitions would coincide for them.
So we are not changing the definition. We are flagging the case: when a company's revenue contains material gross-recognised pass-through volume, the house Rule of 40 understates it, and Block is the clearest example on this site.
The number to watch is not Block's score. It is whether gross margin keeps climbing — because the day the bitcoin line stops shrinking as a share of revenue is the day Block's reported growth rate and its real growth rate start to converge, and the score becomes meaningful again.