Neighborhoods seller base expands to roughly 10 times its prior size, potentially reigniting Cash App user growth, but commercial effectiveness remains unproven

Overview

The report assesses whether Block’s Neighborhoods local commerce network could become a meaningful growth engine. Bernstein recognizes its potential for Cash App customer acquisition, Square merchant retention, and marketing monetization, but believes there is still insufficient evidence regarding incremental transactions, user ARPU, and promotional economics. It therefore places Neighborhoods on its key watchlist without incorporating it into the model for now.

Core views

Block disclosed that the number of sellers participating in Neighborhoods has expanded roughly 10-fold since June, with approximately 30,000 additional sellers added as automatic enrollment progressed. Bernstein estimates that these newly added sellers could represent approximately USD 5 billion to USD 10 billion in annualized GPV. Early engagement data are also strong: top Neighborhoods sellers receive 110% more transaction volume from followers; as of June, follower spending had reached 10% of seller GPV after sellers had been enrolled in Neighborhoods for an average of three quarters. However, the report repeatedly emphasizes that it is currently impossible to determine how much of these transactions and spending is truly incremental. Block is offering a first-time USD 5 Local Cash reward for eligible transactions, along with 10% Local Cash back during the first 12 months, capped at USD 10 per transaction, meaning the early data are also influenced by substantial subsidies. Bernstein believes the most noteworthy use of Neighborhoods is improving Cash App customer acquisition, retention, and engagement. The report estimates that Block spent approximately USD 1.2 billion on Cash App sales and marketing in 2025, excluding Afterpay, below the USD 1.4 billion disclosed by the company; approximately USD 1 billion of this may have been P2P-related costs, with another approximately USD 200 million in paid marketing. Despite this considerable spending, Cash App monthly active user growth has slowed to the low single digits in recent years. Neighborhoods could convert offline traffic at Square merchants into Cash App followers, thereby becoming a new customer acquisition and engagement channel, while its subsidies could also be viewed as part of the combined annual marketing budgets of more than USD 2 billion across Cash App and Square. The user growth opportunity remains a rough scenario analysis. Block currently has 59 million monthly active users, while Bernstein estimates it has approximately 90 million to 100 million annual active users, suggesting an opportunity to convert some annual active users into monthly active users. In May, Block disclosed that sellers initially covered by Neighborhoods represented approximately USD 300 million in annualized GPV at the time and had attracted approximately 100,000 followers, about half of whom had not been active Cash App users during the preceding month. Bernstein further estimates that Block may have approximately 500,000 quick-service restaurant, beauty, and personal-care merchants suitable for participation. If penetration ultimately reaches 80% and each location generates 50 to 100 net new followers, this could create approximately 20 million to 40 million new followers. If 50% of them were not Cash App users during the preceding quarter, Neighborhoods could add approximately 10 million to 20 million new users over the medium term, which would be potentially meaningful relative to the current 59 million monthly active users. Based on estimated GPV of approximately USD 200,000 to USD 300,000 per location, the merchants ultimately covered could represent USD 100 billion to USD 150 billion in GPV, equivalent to 40% to 60% of Square GPV. The report also cautions that these assumptions remain rough and should not be extrapolated further. The economic value of new users is another key uncertainty. Cash App’s average ARPU is approximately USD 130 per user, excluding bitcoin cost of sales, but it is unclear whether users acquired through Neighborhoods can reach this level. Using Venmo as a reference, the report notes that Venmo users skew more affluent, yet its ARPU is roughly an order of magnitude lower than Cash App’s. This indicates that the number of new users cannot be directly equated with the profit contribution of existing Cash App users. Block has a differentiated foundation in physical commerce networks: Square has millions of merchants, controls POS systems and hardware, and processes approximately USD 250 billion in GPV; Cash App has 59 million monthly active users, and Bernstein estimates that its users generated more than USD 150 billion in commercial spending in 2025, excluding Afterpay, with high density among certain regions and demographic groups in the United States. Square already offers a 1% reward on Neighborhoods orders placed directly within Cash App. However, the report advises against overstating the closed-loop payment thesis. Square merchants and Cash App users each account for only a low-single-digit percentage of U.S. digital payment transaction volume, limiting the transactions in which the two networks can overlap. Even if successful, closed-loop transactions may account for no more than a low-single-digit percentage of Square GPV, and nearly all such transactions are still currently completed through Visa cards. Promotion costs could be high during the early stages. Block funds the initial USD 5 reward and the 10% Local Cash rebate. If participating users account for 10% of GPV at some merchants, subsidy costs could equal tens of basis points of those merchants’ GPV, potentially reaching approximately 1% at the upper end. Additional incentives for merchant employees may also arise. Management has already stated that its 2026 guidance includes elevated sales and marketing expenses related to Neighborhoods. Bernstein believes that as management becomes more confident in product-market fit, scaling Neighborhoods could require hundreds of millions of dollars in annual sales and marketing spending, assuming Local Cash is recorded in that expense category. Medium- to long-term returns could come from stronger customer acquisition and retention across both Cash App and Square, lower customer acquisition costs, affiliate marketing, and limited closed-loop economics. Marketing services in particular could become a new source of revenue; Bernstein estimates that the related revenue opportunity could exceed USD 100 million if successfully executed. Block previously stated that it was testing the ability for sellers to send marketing messages to followers, with these messages achieving conversion rates approximately six times those of sellers’ marketing emails. On the competitive front, Toast Local already has 2.4 million users and more than 20,000 reservable locations, while delivery platforms have also attempted similar initiatives. Block’s differentiation lies in simultaneously owning a scaled merchant platform and a consumer business. Accordingly, Bernstein defines Neighborhoods as a project “well worth watching” for Cash App monthly active user growth, merchant retention, and new monetization channels, but believes the existing proof points remain insufficient for inclusion in its financial model. The broader Block investment thesis continues to include accelerating Square GPV driven by the transition in its sales expansion model, new product launches, and international expansion, as well as support for gross profit from continued Borrow growth and the expansion of buy now, pay later on Cash Card. The report also acknowledges that investors may assign lower valuation multiples to these businesses. Bernstein expects Block’s gross profit to increase from USD 10.360 billion in 2025 to USD 12.534 billion in 2026, USD 14.527 billion in 2027, and USD 16.779 billion in 2028, corresponding to growth rates of 17%, 21%, 16%, and 15%. Adjusted operating margin as a percentage of gross profit is expected to increase from 20% in 2025 to 28% in 2026, 32% in 2027, and 34% in 2028. Adjusted earnings per share are expected to rise from USD 2.36 in 2025 to USD 4.03 in 2026, USD 5.43 in 2027, and USD 7.02 in 2028. Bernstein maintains its Outperform view on XYZ, describing Block as one of the companies with the most catalysts in its coverage universe and closely watching whether recent initiatives can improve Cash App monthly active user growth. The report states that the company is valued at approximately 17 times expected 2027 GAAP earnings while maintaining gross profit growth in the teens. The USD 95.00 price target uses an enterprise value-to-adjusted operating income valuation based on USD 4.72 billion of adjusted operating income in 2027 and a 12 times valuation multiple; the financial table lists 2027 adjusted operating income as USD 4.717 billion.

Analysis framework

The report first examines the latest seller expansion and engagement data for Neighborhoods, then compares them with Block’s existing Cash App customer acquisition spending and slowing monthly active user growth. Bernstein subsequently conducts a bottom-up medium-term user scenario analysis based on the number of eligible merchants, penetration, net new followers per store, and the conversion rate of inactive users, while using GPV per store to estimate the potential transaction volume covered. The report further analyzes new-user ARPU, the ceiling for closed-loop transactions, promotional subsidies, and potential marketing revenue, using Toast Local as a competitive reference. Because key incremental effects and economics have not yet been validated, Neighborhoods is ultimately excluded from the forecast model, and the price target remains based on a valuation of 2027 adjusted operating income.

Methodology notes

• Industry/Sector Analysis Framework

  Seller–Follower–Cash App User Conversion Funnel Analysis

  Starting with approximately 500,000 eligible merchants, the report sequentially assumes 80% penetration, 50 to 100 net new followers per store, and that 50% of those followers were not previously Cash App users, roughly estimating that 10 million to 20 million users could be added over the medium term.

• Industry/Sector Analysis Framework

  Closed-Loop Payment Addressable Scale Analysis

  The report compares the respective penetration of Square merchants and Cash App users within U.S. digital payments and uses the overlap between the two networks to assess the ceiling for closed-loop transactions, concluding that they may account for no more than a low-single-digit percentage of Square GPV.

• Valuation Method

  EV/Adjusted Operating Income Valuation

  Bernstein applies a 12 times enterprise value-to-adjusted operating income multiple to USD 4.72 billion of adjusted operating income in 2027, deriving a price target of USD 95.00.

• Valuation MethodP/E and PEG Valuation

  Forward P/E Versus Growth Comparison

  The report compares an expected 2027 GAAP P/E ratio of approximately 17 times with gross profit growth in the teens as supporting evidence that the valuation is not high.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Block Inc (XYZ)

  Neighborhoods connects Cash App consumers with local Square merchants and could promote user growth, merchant retention, and marketing monetization.

  Strengths

  It has millions of Square merchants, approximately USD 250 billion in GPV, 59 million Cash App monthly active users, and control over merchant POS systems and hardware; Cash App has high density among certain regions and demographic groups in the United States.

  Weaknesses

  Cash App monthly active user growth has declined to the low single digits in recent years, while Neighborhoods transaction incrementality, new-user ARPU, and post-subsidy economics remain unclear, and the addressable share of closed-loop transactions is limited.

  Comparison

  Toast Local already has 2.4 million users and more than 20,000 reservable locations, but Block owns both a scaled merchant platform and a consumer business.

  Risks

  Neighborhoods may require hundreds of millions of dollars in annual sales and marketing spending, and the current evidence is insufficient to support inclusion in the model.

Key data

• Neighborhoods Seller ExpansionApproximately 10 times; approximately 30,000 addedSince June 2026, as automatic enrollment progressed
• Annualized GPV of Newly Added SellersApproximately $5B–$10BBernstein’s estimate for approximately 30,000 newly added sellers
• Follower Transaction Performance110% higherTransaction volume generated from followers for top Neighborhoods sellers; incrementality remains unclear
• Follower Spending as a Percentage of Seller GPV10%As of June, after sellers had participated in Neighborhoods for an average of three quarters; incrementality remains unclear
• Local Cash OfferFirst $5; 10% back; up to $10 per transactionEligible transactions at participating merchants during the first 12 months
• Cash App Monthly Active Users59MConversion opportunity remains relative to Bernstein’s estimate of 90M–100M annual active users
• Cash App Sales and Marketing SpendingApproximately $1.2BBernstein’s estimate for 2025, excluding Afterpay; approximately $1B in P2P costs and approximately $200M in paid marketing
• Recent Cash App Monthly Active User GrowthLow single digitsGrowth has slowed in recent years despite high sales and marketing spending
• Initial Neighborhoods PilotApproximately $300M annualized GPV and 100K followersDisclosed by Block in May; approximately half of the followers had not been active on Cash App during the preceding month
• Potential Eligible MerchantsApproximately 500KPrimarily quick-service restaurant, beauty, and personal-care merchants
• Medium-Term New User ScenarioApproximately 10M–20MAssumes 80% merchant penetration, 50 to 100 net new followers per store, and that 50% were not Cash App users during the preceding quarter
• Potential GPV Coverage$100B–$150BBased on approximately $200K–$300K of GPV per location, representing approximately 40%–60% of Square GPV
• Cash App Average ARPU$130/userExcluding bitcoin cost of sales; it remains unclear whether new Neighborhoods users can reach this level
• Block Network ScaleApproximately $250B GPV and 59M Cash App monthly active usersSquare has millions of merchants; Cash App users’ commercial spending in 2025 is estimated to exceed $150B, excluding Afterpay
• Potential Ceiling for Closed-Loop TransactionsLow-single-digit percentage of Square GPVSquare merchants and Cash App users each account for only a low-single-digit percentage of U.S. digital payment volume
• Marketing Revenue PotentialMore than $100MIf Neighborhoods marketing services succeed; marketing message conversion rates are approximately six times those of sellers’ marketing emails
• Competitive ReferenceToast Local: 2.4M users and more than 20,000 locationsBased on Sensor Tower data and the number of reservable locations listed in the report
• Gross Profit Forecast2025A/2026E/2027E/2028E: $10,360M/$12,534M/$14,527M/$16,779MYear-over-year growth rates of 17%/21%/16%/15%, respectively
• Adjusted Earnings per Share Forecast2025A/2026E/2027E/2028E: $2.36/$4.03/$5.43/$7.02Year-over-year growth rates of 21%/70%/35%/29%, respectively
• Free Cash Flow Forecast2025A/2026E/2027E/2028E: $2,425M/$2,850M/$5,378M/$7,183MFinancial forecasts in the report
• Price Target Valuation$95.00Based on 12 times EV/adjusted operating income and estimated 2027 adjusted operating income of $4.72B

Impact & implications

The report believes that if Neighborhoods can demonstrate true incrementality, it could simultaneously improve Cash App monthly active users, Square merchant retention, and customer acquisition efficiency for both platforms, while creating new revenue streams such as marketing. However, closed-loop payments themselves have a relatively low scale ceiling. Because new-user ARPU, transaction incrementality, and net economics after substantial incentives have not yet been validated, Bernstein currently views Neighborhoods as a potential catalyst and watchlist project rather than a growth source incorporated into earnings forecasts.

Risks

• Competitive pressure may be stronger than expected, particularly among larger small and medium-sized business customers.
• New product development and promotion, or growth in existing products, may be slower than Bernstein expects.
• Operating margin expansion may be slower than expected.
• An economic slowdown could reduce payment transaction volume growth, particularly transaction volume among small and medium-sized businesses.
• Cyberattacks or technical failures could cause business disruptions.
• Potential weaknesses in Cash App compliance and customer onboarding processes could create reputational risks.
• It remains unclear whether the transaction and spending increases disclosed for Neighborhoods are truly incremental.
• ARPU for newly acquired users may be significantly below Cash App’s current average level.
• Substantial incentives such as Local Cash may require hundreds of millions of dollars in annual marketing spending to scale Neighborhoods.

What to watch

• The proportion of new Neighborhoods transactions and follower spending that is truly incremental.
• Whether recent initiatives can reaccelerate Cash App monthly active user growth.
• Eligible merchant penetration, net new followers per store, and their conversion rate into Cash App users.
• The actual value of new users acquired through Neighborhoods relative to Cash App’s average ARPU of USD 130.
• Neighborhoods-related sales and marketing expenses and the intensity of Local Cash subsidies in 2026.
• Whether the conversion performance of seller marketing messages can develop into a revenue source exceeding USD 100 million.
• The acceleration of Square GPV driven by the transition in its sales expansion model, new products, and international expansion.
• When Neighborhoods can accumulate sufficient proof points to be incorporated into Bernstein’s forecast model.