Analysis
Block has reported only isolated financial impacts from the U.S. tariffs introduced in April 2025. Management specifically identified these impacts as appearing within the Afterpay and buy now, pay later (BNPL) business, where they were described as "isolated" and related to de minimis tax exemption changes. The company has not explicitly attributed its broader hardware or processing cost increases to these specific tariff policies.
The Square segment experienced significant headwinds from hardware costs in the second half of 2025. In the fourth quarter of 2025, hardware costs were cited as a 200 basis point headwind to Square's gross profit growth. This followed the third quarter where hardware cost increases and a decision to increase operational flexibility at a processing partner combined for a similar drag on performance. For the full year 2025, the gross loss on hardware widened to $126.2 million from $82.4 million in 2024, driven by a 38% increase in hardware costs that outpaced a 30% increase in hardware revenue.
Looking forward, Block expects a continued spread between gross profit and Gross Payment Volume (GPV) growth in the first half of 2026. This variability is anticipated to be driven primarily by ongoing hardware costs, which the company views as a customer acquisition investment to win larger, more retentive sellers. The overall impact of the reciprocal tariffs on Block's core hardware lineup was likely mitigated by federal exemptions for various electronic products and components signed in mid-April 2025, which retroactively applied to computers and smartphones.
The company's primary strategy to offset hardware-related headwinds involves increasing software attach rates and evolving pricing and packaging. By focusing on these high-margin software solutions, Block intends to ensure that hardware continues to serve its role as an entry point for sellers while maintaining attractive total cost of ownership and overall ecosystem profitability.
Data
Square Hardware Performance Detail
($M)
| Metric | FY24A | FY25A |
|---|---|---|
| Hardware Revenue | $160.9 | $209.5 |
| (-) Hardware Costs | (243.3) | (335.7) |
| Hardware Gross Loss | (82.4) | (126.2) |
Source: Annual Report FY-2025
Square Gross Profit Growth Headwinds (4Q25)
(Basis Points)
| Headwind Driver | Impact on Growth |
|---|---|
| Hardware Costs | 200bps |
| Processing Costs | 200bps |
Source: Transcript FY-2025
Sources
We saw only isolated impacts from tariffs and sort of the de minimis tax exemption changes that appeared in our buy now, pay later business.
Hardware costs and higher processing costs were each a 2% point headwind to Square gross profit growth in Q4.
In the first half [of 2026], we anticipate a continued spread between gross profit and GPV growth, with some potential variability driven by hardware costs.