Will Block record an Afterpay-related goodwill impairment charge in FY2025 or FY2026?

The $29B Afterpay acquisition occurred at peak fintech valuations (Jan 2022) in a vastly different rate environment. Intangible amortization has reduced carrying value below $29B, providing some cushion. However, BNPL originations are growing at $3B annualized with +17-18% CC GMV growth, suggesting the business unit generates real and growing revenue. The silence on impairment testing across five consecutive earnings calls is concerning but not dispositive -- it could indicate comfort with headroom rather than concealment. Annual impairment testing in FY2025 10-K is the next major data point. The two-year resolution window provides multiple testing cycles but operational momentum argues against near-term impairment.

The resolution window spans two annual impairment testing cycles (FY2025 and FY2026 10-Ks), which mechanically increases probability versus a single-year question. However, the committee resolved that carrying value is likely lower than $29B after intangible amortization, providing cushion. If Block uses DCF for fair value, the higher discount rate environment since 2022 reduces fair value, but the integrated Cash App Card unit generates strong cash flows with GP accelerating and guidance raised. The Black Swan Beacon's 15-25% single-year estimate is a reasonable anchor; over two years the cumulative probability is modestly higher but offset by positive operational trends.

Block's pattern of divesting or deemphasizing prior acquisitions (TBD winding down, TIDAL scaling back) is a relevant base rate for how this management team handles acquisitions that underperform strategic expectations. The integration into Cash App Card obscures standalone Afterpay metrics, which could either protect the reporting unit (larger unit harder to impair) or mask deterioration. The committee flagged this at MEDIUM confidence with E2 evidence across 3 lenses -- a genuine cross-lens concern. Macro credit cycle risk over the two-year window could trigger BNPL loss spikes that force impairment testing failure. Slightly above the Black Swan Beacon midpoint given the extended resolution window.

The math is structurally unfavorable for Block over a two-year window: $29B purchase price at peak valuations, compressed fintech multiples, shifted BNPL competitive dynamics (Apple Pay Later, regulatory scrutiny). But the operational data argues against imminent impairment -- $3B annualized originations growing rapidly, and the committee resolved that carrying value is likely below $29B after amortization. The zero discussion of impairment testing is the most concerning signal -- most companies with large acquisitions at least reference their annual testing methodology. Ernst & Young as long-standing auditor provides some assurance that testing is conducted properly even if not discussed publicly.

ASC 350 requires fair value below carrying value to trigger impairment, not merely fair value below purchase price. The integration into Cash App Card likely makes the reporting unit larger and healthier -- a larger reporting unit with strong aggregate cash flows is harder to impair even if the acquired component underperformed expectations. Afterpay's BNPL originations are ramping, not declining. Among large tech acquisitions at peak 2021-2022 valuations, impairments have occurred primarily where the acquired business deteriorated (not merely where multiples compressed). Block's GP is accelerating and guidance is being raised, suggesting the integrated unit is healthy.

The Black Swan Beacon estimated 15-25% probability of impairment exceeding $10B for any single year. Over a two-year resolution window covering two annual impairment tests, the cumulative probability is meaningfully higher -- roughly 1 minus (1-0.20)^2 = 0.36 using the midpoint. This aligns with the cross-lens reinforcement across Fugazi Filter, Gravy Gauge, and Myth Meter at MEDIUM confidence. The silence on testing assumptions across five consecutive calls is more suspicious than reassuring. Ernst & Young's continued engagement doesn't preclude a future impairment -- auditors often sign off on aggressive assumptions until they don't.

$29B acquisition at peak valuations with zero impairment discussion is a genuine transparency gap flagged across 3 lenses. However, BNPL originations are growing at $3B annualized and carrying value is reduced by amortization. Two annual tests in resolution window push probability above single-year Black Swan estimate of 15-25%. Balanced at 0.30.

Integration into Cash App Card makes the reporting unit larger and harder to impair under ASC 350. Operational metrics are positive: BNPL originations growing, GP accelerating, guidance raised. Committee resolved as 'noteworthy gap' not 'imminent risk.' Management appears to have headroom based on absence of auditor emphasis-of-matter or reporting unit restructuring signals.

Two-year window captures potential credit cycle deterioration that could spike BNPL losses per Black Swan Beacon scenario. Block's pattern of divesting acquisitions (TBD, TIDAL) suggests willingness to write down when strategic priority shifts. But management raised guidance and GP is accelerating -- current trajectory does not suggest imminent impairment.