Q4 2019 Earnings Call

Good day, ladies and gentlemen, and welcome to the square fourth quarter 2019 earnings Conference call I would now like to turn the call over to your host Jason Lee head of Investor Relations. Please go ahead.

Everyone. Thanks for joining our fourth quarter 2019 earnings call, we have Jack and Im read out with US today first we want to remind everyone out the format of our earnings call.

We're pleased to show that are on Investor Relations website, which was available shortly after the market close we will begin this call is short remarks before opening the call directly to your questions. During Q in any we'll take questions from our sellers. In addition to questions from conference call participants.

We would also like to remind everyone that people are making forward looking statements on this call actual results could differ materially from those contemplated bar forward looking statements report results should not be considered as an indication of future performance.

Please take a look at our filings for the FCC for discussion of the factors that could cause results to differ.

Also note that the forward looking statements on this call are based on information available to us as up to date state. We disclaim any obligation to update any forward looking statements as except as required by law.

Also during this call will discuss certain non-GAAP financial measures reconciliation to the most directly comparable GAAP financial measures are provided the shareholder letter on our Investor Relations website.

These non-GAAP measures are not intend to be a substitute for GAAP results.

Additionally, as discussed in general letter, we discontinued the use of adjusted revenue last quarter. Following receipt of a comment letter from and discussions with the FCC. Our statement of operations continue to disclose total net revenue transaction based costs and big going caused determined in accordance with gap.

You can point of adjusted revenue.

We also introduced new guidance measures on GAAP gross profit as well as the sum of transaction based cost and big going cost. There are no changes to any other GAAP or non-GAAP metrics, we oppose the spreadsheet honor Investor Relations website with our historical financials and additional details related to our income statement.

Following this call its entirety is being audio webcast on our Investor Relations website, an audio replay of this call will be available on our website shortly with that.

I'd like to turn over to Jack.

Thanks, Jason Hello, everyone and thank you for joining US a few comments from me Annemarie it up before we get to your questions.

2019 was a very good year for us, we continue to refine and build upon or ecosystem tragedy, which we believe is our biggest competitive differentiator.

Many companies only get an opportunity to scale, one ecosystem and audience. We're on the incredible position to scale to ecosystems, southern catch up representing sellers their customers an individual's wanting to access more of the financial system.

And we're increasingly happy with the results.

In 2019, we launched a lot of key products indoor seller ecosystem. The square card square online store order manager the invoices up square assistant in appointments and square terminal in the UK, Australia and Canada.

We also launched a number of new marketing campaigns around the world our latest reaching an estimated 8 million businesses and updated our U.S. based pricing to 2.6% plus 10 cents or products and developer platform are resonating with larger sellers to as of Q4, 55% of our GPV was from larger sellers.

Catch up launched a redesign for easier navigation and Discoverability Bruce partnerships in equities investing the investing feature has seen the fastest adoption of any product launches in the cash ecosystem.

Gosh up continues to exceed our expectations consistently found in the top 15 free apps and the App store and driving to 24 million monthly active customers as of December 2019, which is up from 15 million in December of 2018.

The cash card is also a scale being used by over 20% of our monthly active customers.

The peer to peer transfers now transfers network continues to be our best acquisition channel as each person with an account brings in more folks just by sending or receiving money.

Those new to the up then go onto discover bitcoin the cash card boost and investing what's a strong reinforcing model, we don't see elsewhere.

All this has given us a powerful foundation to build upon and 2020.

We continue to find value handling all the complexity of small or large seller or individual would face when working with financial system.

They come to and stay with square because we're so fast simple and comprehensive we strongly believe investing in this model will continue to set us apart and grow the number of people we get to serve.

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Thanks, Jack our results for the fourth quarter and full year 2019 highlight the momentum in our efforts to help existing customers grow to reach new customers and to build new products and services economic empowerment for sellers in individuals.

In the fourth quarter, excluding caviar total net revenue grew 46% and gross profit grew 42% year over year exceeding our November guidance.

For the full year, excluding caviar total net revenue grew 45% to $4.57 billion in gross profit grew 46% to $1.85 billion.

We believe our results demonstrate that the strategic investments, we're making are bearing fruit as we've continued to gain share well keep growing rapidly at scale.

Turning to our seller ecosystem in the fourth quarter seller generated $938 million of total net revenue and $379 million of gross profit, which increased 26% and 27% year over year, respectively.

[noise] seller delivered slightly higher gross profit growth in the fourth quarter compared to the third quarter. This is driven by broad based performance, let's examine some of the dynamics first as Jack mentioned, we change the price of U.S. card present transactions in the fourth quarter to better align with industry costs.

And we've seen encouraging retention rates have impacted customers does still early we believe this is evidence of the compelling value we provide sellers.

Second in the back half of 2019, we began investing more in go to market initiatives and saw favorable results following marketing campaigns with which we tell a broader story about squares ecosystem across software hardware and financial services. The ecosystem campaign drove an uplift in awareness of squares products along with a third.

30% uplift in web traffic year over year.

This in turn drove both self onboarding and lead generation for our sales teams, while the majority of new sellers still self onboard to square, we are increasingly serving larger sellers through our sales team sales accounted for 20% of new seller GPV in 2019 up from 12% in 2015.

We expect contributions from our sales team to play a growing role in 2020 as we build out the team increased productivity through data science tools and get the message out about our product innovations that enable us to serve the needs of larger and more complex sellers.

[noise] square capital was another driver of growth for the seller ecosystem. We recently updated capitals data science model, which enabled us to serve more loans to qualified sellers, while maintaining loss rates of less than 4% on average finally for seller. We believe a key part of our future growth is international.

Although relatively small for us today at 52% year over year growth in Q4 International is compounding at roughly two X sellers blended growth rate and has now delivered two consecutive quarters of faster year over year growth.

Turning to cash out where we've seen healthy growth in monthly active customers as well as monetization per customer driven by our teams continued innovation around product features.

In the fourth quarter Kashyap delivered $183 million in revenue, excluding big clean up 96% year over year and $141 million in gross profit.

101% year over year.

Cash up strong and sustained growth.

Has led to a mix shift in our overall company gross profit with cash accounting for 27% of total gross profit in the fourth quarter compared to just 19% a year ago.

Our teams are focused on driving regular engagement with our customers.

As Jack mentioned Kashyap was at 24 million monthly actives in December up 60% year over year and has added more new monthly active each year since launch with December 2019, being its strongest month for new ads.

Cash up daily active customers increased at an even faster clip of 80% year over year, as we've enhanced discoverability and navigation to our products as well as added new products like <unk> equity investing.

[noise] catch up is not only been growing its engaged customer base to an impressive scale, but it is also driven consistent growth in revenue per customer over the past few years.

In December catch up generated more than $30 in annualized revenue per monthly active customer, excluding bitcoin, which more than doubled from less than $15 in December of 2017.

Well this is strong monetization for a consumer App. We believe we have room to grow further by continuing to increase the attach rate on cash card and further cross sell new products to come.

In both our seller and cash App ecosystem, we've achieved compelling unit economics with strong retention and payback periods.

This is a result of our ability to build and integrate remarkable products find efficient channels for customer acquisition and deepen relationships with their customers overtime.

2020 is an important year for us as we continue innovating and investing to bring new customers into both our ecosystems in the U.S. and globally.

Turning to our financial guidance for 2020, we expect to achieve total net revenue of $5.90 billion to $5.96 billion in gross profit of $2.44 billion to $2.475 billion or 34% year over year gross profit growth at the high end of the range excluding copy.

Are these figures are ahead of the preliminary expectations, we shared on our third quarter call as the business has continued to execute at high growth rates, even as we scaled.

We expect our 2020 transaction profit margins as a percentage of GPV to be relatively stable compared to 1.08% in 2019, as we expect any benefit from the pricing change to be largely offset by mix shift to larger sellers.

We expect to generate adjusted EBITDA between 500 million in $520 million consistent with a preliminary guidance, we provided on our last call.

Similar to 2019, if we deliver top line outperformance during the year, we do not intend on increasing our adjusted EBITDA guidance and instead plan on reinvesting that upside back into the business, where we see opportunities to benefit long term profitable growth.

Our EBITDA guidance includes strategic investments across both ecosystems, including the previously outlined sales and marketing spend for a seller ecosystem, which we expect to achieve a four quarter payback on our overall 2020 spend and to return multiples overtime based on the strong returns we see.

Additionally, as previously mentioned 2020 guidance includes a larger than normal facilities expansion related to our Oakland office as well as additional regional offices, which will add an incremental one time step up a $50 million to our operating expense base.

Over the medium to long term, we expect to continue to drive leverage from our DNA expenses as we have historically.

Finally, we're in that hosting our Investor day on March 18th in San Francisco, where we will provide a deeper update I don't want on our long term vision market opportunity strategy and business model for the seller and Kashi ecosystem and long term financial outlook I'll now turn it back to the operator to start the Q any portion of the call.

As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound or Husky. Please limit yourself to one question to allow other participants time for questions.

Please standby only compiled acuity roster.

Your first question comes from Lisa Ellis with Moffettnathanson. Your line is open.

GAAP numbers two quick ones on cash up first given the fee pressure in the retail investing industry, what's your monetization strategy for the new equity investing functionality.

And then second what are the biggest benefits you're seeing from the new cash up design that you've rolled it out in the last few months. Thank you.

Thanks Lisa.

I'll start with the second question actually we did as I mentioned in my remarks, when things. We did last year was clarify the navigation and the goal of this was to increase the discoverability over other services. The cash card a decline which was also grouped with investing now and just provide.

I'm much more fluid and easy to access way to get some of the core functionality.

That worked we did see increased discoverability.

And the reason why that's important ultimately is the peer to peer network has a great reinforcing model and that it grows as people to send and receive money, but as people see new features within the up such as investing they tend to retain longer and we tend to see a lot of.

Benefit from the thought usage as well.

So we are.

We started we started just going down that path there are still potential work to do or around the navigation to bring even more for but we're really happy with those results.

As we've talked about in the past on these calls around any of these features we have a lot of levers to pull in terms of whether we see them more as acquisition channels or areas for us to drive monetization and profit.

We want to be flexible with.

So this is something as we as we introduce these new adjacent sees that give people more accessible financial network.

We can evolve or change overtime. The goal right now is to provide something but I'm not a lot of people have had access to in the past, but also learn as much as possible. So that we can make better informed decisions.

Just to add to that Lisa I'm, when we look at products like investing what we see is very engaged customers who have the opportunity to do lots of things across the ecosystem and that engagement and turn it drives broader monetization, so and investing or bitcoin active tends to generate two to three X the annual revenue compare.

Hard to other cash customers that we see and what you think about there is the seven different revenue streams that we have the men multiple ways that we have to add value to our customers and drive that daily utility, which in turn I results in seven different revenue streams that we have across kashyap that we can drive people to now that we have greater discoverability and navigation as well.

Terrific. Thank you.

Your next question comes from Tensing, Hong with JP Morgan Your line is open.

Hi, Thanks for the the presentation I wanted to ask on on the pricing.

Just your pricing philosophy in general we've seen fees go up for instead posit and some prices down for register and terminal as you.

Called out in the letter so as that you're thinking around pricing change this part of your.

Investments and go to market. Thanks.

Thank you Oh, I'll start with Us I think.

Just to remind folks of or or early philosophy around run price one of the key differentiators for us in the early days of the company.

Was the simplicity and more so the consistency of our price. So we started with a 2.75%. This was important to merchants because typically when they went through so credit cards that rate was variable based on the card that their customers were using so adding something that presenting.

One thing that was stable there was transparent and that was up front was really the philosophy independent of that particular number that remains true today, we do see price as a lever for us and we want to make sure that we're balancing.

The needs of our customers, but also enabling us to.

Fuel more of more of our work and building.

Got it now you guys pioneered the she goes next month Ics.

Thank you.

Your next question comes from Brendan O'connor, we share where square your line is open.

Hi, This is Brendan I'm I'm, a square seller front, a small bakery cauliflower and salt bakery up in upstate New York.

My question is the square have plans to develop a way for shell is to fulfill delivery order. So that small town businesses can run their own delivery service without relying on the big delivery companies that don't have local operators.

Yes. Thanks, Thanks for the question Brendan and thanks for for being our customer and using square.

This is this is actually a frequent request from our sellers because we know that managing delivery orders is really difficult and complex and takes away time from you to really focus on your customers and then making more sales.

If you use square online store, we have order manager there so when customers purchase something from your web site and select delivery theater Pops up in your point of sale, but we don't currently have a fleet management service or away for buyers to truck deliveries, but it's something that we're open to considering and we'll have a number of partners in the marketplace.

You can connect with that can help with those needs to.

Yeah. Unfortunately, a lot of them aren't local to us because we are in such a small town but.

Look forward to seeing you guys work on something for us in the future.

Got it thank you so much.

Your next question comes from Josh Beck with Keybanc. Your line is open.

Thanks for taking the question.

Maybe unpack.

2020 guidance, a little bit just given the growth rate and I think really the phase of the.

Sumer, Phil Stiller ecosystems are different points any.

Kind of color you can provide and just how we should be thinking about those businesses as we go through the year.

Yeah happy to take that question, Josh So as you look at our 2020 guidance. What we see here really is a reflection of the strong broad based momentum that we have across both ecosystems coming out of Q4 and now in the early part of 2020, so you're looking at gross profit growth of 34% ex caviar at the high end.

Which is slightly ahead of our initial expectations on our November call sit unpack that for you a little bit across seller and cash with seller. We expect stable gross profit growth consistent with the back half of 2019, which is roughly in the 26% range.

And as you know, we're ramping our investments throughout the year in sales and marketing so as we ramp those investments we'd expect to see an impact to our topline numbers and towards the end of 2020, as we ramp to spend and as we add new customer cohorts throughout the year end of 2020 and ended 2021.

On catch up we have grown this ecosystem rapidly now represents 27% of the overall company gross profit in the fourth quarter and on an annualized revenue run rate basis ex big coin is that over $700 million in Q4.

And so with triple digit gross profit growth through at a 104% gross profit growth in the fourth quarter, you naturally you'd expect to see those growth percentages come down over time and 2020, we still expect cash so to drive sustained growth on a dollar basis and this is again based on the durability of the business model that.

We have here in the power of compounding overtime with respect to your question around phasing.

In Q1, we tend to see a bit of seasonality around the seller business, especially coming out of the holidays in Q4 with cash becoming a larger percentage of our business. So that has started to counteract that a little bit because we see less of that seasonality in cash that's a little bit of the dynamics that we're seeing play out in terms of the phasing throughout the year.

Very helpful. Thanks Emily.

Thank you.

Your next question comes from Darrin Peller with Wolfe Research Your line is open.

Hi, Thanks, guys I, just want to follow up a bit on the cash app monetization side, which was clearly impressive at about $30 per user that you guys said and.

I mean, it looks like it's around three times that of the revenue per user of your closest competitor that's called out. So just maybe help us understand again the strategy, that's enabling that other than maybe just pricing nuances, what what's the opportunity and what are you seeing consumers how are they behaving around this app is it becoming that Neil bank to them yet.

That's enabling that.

Is it still mostly as a deposit in third card and what else is the Com and then maybe just when we look at the gross margin of that I think it was around 70% was also pretty impressive can you just touched on the scale possible that business versus the investments needed. Thanks guys.

Sure I can I can start on that Darren thanks to the question.

So just to break down kind of how the cash team. This team has a lot of gumption and they are really executed at a high level over the past few years, just to break down a little bit about how that team focuses and what they're looking at first and foremost its network growth and you saw that this quarter.

On ending the year at 24 million monthly active customers, which is up 60% year over year, but even more importantly than that is the daily usage that the team is looking to drive through the launch of new products through things like the tabs redesign, which really creates greater navigation to the broader ecosystem of products that we offer and daily usage was up.

80% year over year growing faster than the overall network. So we're proud of the work there and also proud that we've achieved this growth is relatively low cost of acquisition on paid marketing, which again as a result of that core feature around peer to peer transfer helping to bring in more customers at a relatively low cost efficient.

Cost of acquisition.

From a cohort economic standpoint, as you called out that $30 on a per customer basis, that's across all monthly active customers is more than doubled since 2017.

And there is another important step in that as well, which we shared last quarter, which is we see positive revenue retention for each of cashes monthly cohorts of active customers. Since 2015, that's a similar dynamic that we've seen to the seller business and again shows that we're able to efficiently acquire customers keep them engaged on increasingly a daily basis.

And then offer them additional ways that we can add value in there for monetize across the the ecosystem.

And I just some are going to point out. The this is this is where the ecosystem model really works well for us.

We don't see that with the other Neil banks, we have is very strong foundation and utility and peer to peer.

Which allows us to introduce folks to various aspects of new functionality within the up itself and that and that that spreads through word of mouth as well. We also benefit from some really creative and highly impactful marketing that the team does do we've just the team is kind of.

We thought.

How to think how to bring a product and features into the market in the first choice and we also benefit a lot from all the songs, but are out there that have catch up either on the name or in the in the lyrics.

Right.

Thanks, guys.

Thank you.

Your next question comes from Hershey tell wrought with Bernstein. Your line is open.

Hi, good afternoon, so I'm glad that question for you and investments clearly lots of good opportunity for you to invest across omni channel International sales and marketing the of God eggs I guess shot as you sort of look into your guidance it twentytwenty or what are the two or three big investment it is.

To plan for this year beyond the said if you know need big increase sales and marketing spend on the salad business has got it articulated before.

And then more broadly how do you think about balancing incremental investment dollars between gas shot.

We just really fast growing versus seller business, which is majority of your revenue today.

Sure happy to take that question our sheet, we are focused on growing the two ecosystems in 2020 across not only products. We think of product innovation is driving long term growth for us and Tam expansion and being able to serve new customers in new.

Ladies and.

And then secondly, as you mentioned in sales and marketing, which helps us scale those products helps us reach customers not only in the U.S., where we are.

Distributed today, but also in a number of markets around the world. So we continue to be focus and investing in both of those areas product development to make sure. We're serving our customers through feature enhancements today as well as new ways to sort of them in the future as well as sales and marketing, which is then helping to scale those products by reaching more.

Customers in new ways.

With respect to how we balance investments across seller in cash we think about first what the needs our independently across each business and the ways that we can best serve our customers be it sellers are individuals and each of those businesses and then we think about ways that the rising tide lifts all boats and we can.

Eventually create ways that benefits in one area can can return results in another area as well, so we and Weve Luckily been able to do this historically by delivering compounding scaled growth in the seller business, while creating an entirely new ecosystem organically with cash shop.

At the same time in a matter of three or four years. That's now it at more than 700 million dollar run rate. So we don't see it as an either or where the two ecosystems. We believe that we can drive growth and investment dollars in both of them.

Thank you.

Your next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Hi, guys.

About the change in pricing in instant transfer do you expect some churn in that channel and the resulting pickup in cash card just thinking about the impact to the P. now and then have to ask the obvious question on chronic virus any impact you're seeing that you're seeing anything on consumer spending and you asked but how about international markets like Australia, Japan. Thanks.

Hey, Brian So you're right in early January we announced a pricing change on seller instant transfer from 1% to 1.5%. We felt that now that sellers have the free alternative on square card that gives them instant access to their funds. We felt the timing was right to reconsider the pricing on.

On on on instant transfer because with square card not only do they have access instantly to their own funds that encourages sellers to keep their funds within the square ecosystem and to use and explore our ecosystem and new and different ways now with respect to the piano. This price changes already contemplated in our 2020 guidance include it in.

That 34% gross profit growth ex caviar at the high end, we expect it seems to be accretive in 2022 total net revenue and gross profit growth, but it's going to be small we believe relative to the size of the seller business remember yet or billion for an annual gross profit in 2019.

And then your second question was on Krona virus.

Yeah, just the impact I mean any impact in U.S. consumer spending I doubt it, but but curious on any impact on international markets.

Sure you know in short we didn't see any material impact in our Q4 results as you can see nor do we expect a material impact in Q1 for our results. When you look across the seller and cash ecosystems. Today, we continue to see healthy trends in performance.

And we have sellers in a variety of industries on our platform and we're actually under indexed to tourism.

Although of course will continue to monitor any impact to the overall consumer spend numbers that we see.

Helpful. Thank so much.

Of course.

Your next question comes from Tim and She'll do with credit Suisse. Your line is open.

Thanks, guys. So I want to touch on important aspect of cash and that will be direct deposit.

With the recent App redesign and then also some of the stuff that you are doing around payroll and or caviar indoor dash is there anything you can you, let us know in terms of direct deposit penetration or trends or maybe plans going forward.

We through a direct deposit this is another area, where we saw an opportunity.

To serve more of the needs of people would typically go too.

Bank branch for and so again like just removing as much friction as possible. So they don't have to to think about the financial system in anyway. This is certainly one ATM.

Card.

The cash card being use a tim's is another such example.

Bill the ways, where we can fit in People's lives every single day.

Instead of just being a weekly or weekly occurrence.

So as we look at futures light that we're always looking for opportunities.

Through the first party or through or through partnership.

But it's it's a good it's a good entry point for for us and for our customers.

So that they can see us more and more of the way to to manage third third their access the financial system and for us to remove a bunch of that complexity.

We're still we're super pretty early in understanding what those use cases are ultimately and where where it goes but but we intend to to learn as we see more and more usage around that.

Thank you very much.

Your next question comes from Peter Christianson with Citi. Your line is open.

Thank you good evening. Thanks for the question a lot to like here.

I was just hoping if we could talk a little bit about the off the square capital changes to the system. There, perhaps if you could describe a little bit more in detail. Some of the factors that help you open up that product to more of the seller base and whether you're seeing any changes in like origination economics for square. Thank you.

He Pete Thanks, a question.

So we recently updated our capital risk model to capture we would call additional signals, which help us better optimize various loan attributes think of it like term length, a repayment amount for sellers those signals improve our ability to monitor it he seems like ability to repay and likely.

Got it fraudulent activity that in turn that helps us determine creditworthiness and this credit this update to our risk model was a key driver of capitals outperformance in the fourth quarter as it resulted in larger loans to our most credit worthy sellers and I think it's part of a broader team here of our access.

Just to proprietary real time data, where we are able to continuously improve capitals machine learning models and this is what's enabled us to maintain stable loss rates below 4% on average for our core flex on products since 2017, even as originations have roughly doubled.

And in the fourth quarter, we saw some of the benefits of that capital generated $671 million in originations on a dollar basis up 42% year over year with revenues up even higher because of the strong investor demand that we see here.

Thank you.

Your next question comes from Ramsey El Assal with Barclays. Your line is open.

Hi, guys and thanks for taking my question Tonight.

How should we think about the kind of horizon of your marketing investment should we expect a certain point in time, where we sort of a laugh a period of heavy investment or should we think of some of this is it more kind of permanent addition to the expense structure in nature, and then just as as a bolt on to that Jack.

Talk last quarter about combining the seller in cash ecosystems and I'm just wondering how you're thinking along those lines has evolved since since we last spoke.

Hey, Ramsey I'll take the first part of your question on how we think about the horizons for our marketing investments.

What we really look at more than anything here is the efficiency metrics and so you've heard us talk about things like payback period being in that four quarter range well, we saw in Q4, even with the beginning of the ramp of the spend here is we believe consistent with that four quarter payback and in 2020 would be incremental investor.

Rents that were making again, we expect to four quarter payback.

But the other key metric that we look at his ROI return on investment and that captures the overall lifetime value of a seller.

As we're able to reach more and more large and complex sellers, who we know take on generally more products within the square ecosystem, we have the opportunity to expand lifetime value for these customers and therefore, even with increased spend on sales and marketing to see very very compelling ROI. So what we.

We plan to continue to do is ramped to spend optimize as we go and measure. These results to ensure that we continue to see this ROI him and with the unit economics that we have in the seller ecosystem, where we have positive revenue retention what that means is that each seller that we bring in effectively a.

He did grow on our platform and to become an annuity stream. So we believe that that's the dynamic that we'd want that our investors would want us to invest behind.

And we have Ah, we have been an incredible advantage over our peers in this industry.

Because of the two ecosystem. So there were building one solar focused on and also focusing on on their customers, but catch up as well.

I'm hearing both of them together is quite powerful.

We see this in a few ways one.

We benefit from a lot of the internal.

Collaboration and intersections a lot of what we've learned from cash up has informed some of the products and features within the solar business and vice versa.

So that gives us ability to learn very very quickly.

Them to ecosystems at scale and we do think those a lot of opportunity in the future.

Connect them from a external customer facing experience perspective.

We have done this in the past most notably.

Probably a good example of this is a is payroll so important employees can actually.

Utilize the the the payroll feature to get paid via cash up which is which is excellent. We saw thus in the past with carriers when we had.

Caviar as well so theres a number of Theres a number of points between the two ecosystems that you can imagine us continuing to explore and building something around.

Right now we're concerned we're learning what the most impactful ones that those are starting small and then and then building up as we as we learn more from it.

Perfect. Thanks, so much.

Thank you.

Your next question comes from Jason Kupferberg with Bank of America. Your line is open.

Thanks, guys I just had two on cash perhaps I'll ask them upfront. The first is on cash card itself. I think you said that it's only being used by about 20% of monthly actives. Currently I would just be curious to know what that number may be looked like a year ago and.

Kinda headroom you see in that number as you look.

Forward and then just second can you give us a sense of how much. The boost rewards program is currently pressuring revenue and what the prospects are for more about to move into a merchant funded model overtime.

Hey, Jason I'll take those questions and so on cash card you did hear the 20% that were at over 20% attach rate on cash card. The the last absolute number. We gave you as of June was three and a half million monthly actives, but as we've grown the base of cash monthly actives more broadly since.

June obviously, we've also ramped cash card active and we've ramped the attach rate since June as well I'm Citi. Your question about how has attached looked over the past year that is something that has grown over time as we've been able to prove out the value to our customers in fast access to these funds and through products like boost.

And as we've been able to create better discoverability navigation around products like cash card.

Our cash card actives are transacting multiple times a week. So we know it's a key part of that daily engagement daily utility that we're driving with cash out more broadly. It's also a key part of that revenue per customer that we outlined this quarter at $30 in December of 2019 versus $15 two years ago and cash card with.

Hill in its infancy.

With respect to your question on boost the numbers that we report for revenue are already take out the boost costs. So revenue ex the coin being $183 million in the fourth quarter already nets out our boost cost.

And we the team is very active in how we manage booth and has actually innovated on boost quite a bit over this past year doing things like block boost and expiring loose and Geo and located booze, so creating different ways to create engagement around booth and create timeliness around booth, which also have the added benefit.

That have created in creating an expense management mechanism for us around boost as well so it's a growth lever for us, but it's also one that we can actively manage.

Okay, well walk on the quarter.

Thank you Nick Thanks.

Your next question comes from George Mihalos with Cowen Your line is open.

Hey, Thanks for taking my question guys. Just had a question on the on the I'll see application any update you could provide there and then.

Within that context of another fintech going out and purchasing a bank are you thinking any differently around sort of the build versus buy strategy and maybe the need for an OEM.

I will see application versus just buying up I guess more of a traditional corporate bank. Thank you for commercial bank. Thank you.

Yes. Thanks for the question, we no update on on the I'll see.

Process and progress.

We'll certainly keep you informed us as we have more in terms of Uh huh.

The I think it's important to remember why we're doing this in the first please.

This is not something or businesses dependent upon but creates a number of opportunities of efficiency.

And.

We we would certainly look at other potential options, but.

This is this is one that that feels right to potentially create more efficiencies, but again no dependency on it so.

We haven't we haven't.

Focused on other considerations.

Your next question comes from Dan Perlin with RBC capital markets. Your line is open.

Thanks, and good evening I, just I just had a quick question as it pertains in aggregate to the guidance for 2020, and it's really more a function of how much flexibility you have you built into that given maybe some concerns around the economy.

We run into some bumps and you guys have the throttled back with toggle a little bit on these investments that you're making would you still envision didn't make as investments that you would have this type of.

Type of growth trajectory that you guys are on.

And I'm just thinking in terms of.

Your ability to throttle back on some of those expenses to the extent.

Yes.

Thanks.

Thanks for the question, Dan So I'd started a high level and just say that nothing has changed with respect to our guidance philosophy, which is to use as much as we know about the business to inform our outlook in future periods and again, we're coming into 2020 with strong broad based momentum across both seller in cash in multiple ways with.

In each of those ecosystems. So that's really what's informing our guide with respect to flexibility of course, we find ways to build in flexibility in terms of how we manage the business and that's true and weekly reviews.

Reviews across each of the key spend areas, whether its hiring or sales and marketing spend to answer that we're using the levers in optimal way and that we can pivot as needed based on what we see in the market or based on the returns inefficiencies, we see across various channels.

That's great. Thank you.

Your next question comes from James <unk> with Morgan Stanley. Your line is open.

Thank you I just wanted to ask two quick follow up on related questions previously been asked first.

You talked about it a bit of acceleration in your international markets, particularly on stellar et cetera, just wanted to give up some additional color as to what you're seeing in those more which markets and kind of what you think it's driving that acceleration and how we should think about contribution from that my second question goes back to.

Ill see it sounds like.

At least the time being you're not feeling limited but.

If you had.

Fears or some other sort of baking charter and license do you think you could accelerate faster or further your your cash out than and associated services. Thank you.

Well I'll answer the second question for so I don't I don't believe there would necessarily be because I'm. So we're in an extremely good position.

After with hurt or progress pace and speed.

And our ability to work in very very creative ways with ER with partners. So that we don't have to be everything in order to provide a really compelling.

Customer experience so in terms of global acceleration.

I think.

A high level drivers is we're launching we're launching a lot more of our products into the markets or were there were currently in so we launched or terminal in Australia, Canada, UK or we launched square for restaurants in the UK in Australia.

And we continue to experiment with a with cash in the UK. So that we can better inform how we think about expanding the cash up as well.

But but launches are meaningful so the more we complete or ecosystem.

In all the markets were in look for opportunities to.

To go into new markets, so definitely definitely benefits some us in terms of usage.

And James on on International I'd add that it's pretty broad based in terms of the performance that we're seeing do you want to caution it's still small today right. So international Q4, GAAP revenue was $75 million, but it's growing rapidly it's growing at two X the rate of the broader seller business at 52% a year over year in Q4, and we've seen to street.

Orders of improving growth rates there.

And another key piece of it as Jack mentioned, we're launching new products were attracting new sellers and the revenue contribution from new seller cohorts, we feel as a leading indicator of growth and then it is growing faster in international markets than in the U.S. with international now contributing over 10% of seller new sellers.

DPV in the fourth quarter, so where were happy with them and momentum that we're seeing there.

Thanks, Jack Thanks Andrea.

Thank you.

Your next question comes from Bob Napoli with William Blair. Your line is open.

Thank you I'd makes execution question on your omni channel strategy, it's been over years since you acquired Weebly and Jack I think you're.

One of the things the increase in marketing is to increase awareness of products and so you have the omnichannel strategy with the online store trying to me to show. The your software runs a whole business I was just wondering on the progress of that Omni channel strategy and then with.

No expanding customer usage of your software to run the full business, maybe more like what shopify may be doing.

Yes. Thanks for the question, Bob I think first and foremost the most important thing to point out here, So really sets us apart as square online store supports all types of businesses or not just focused on retail we handle restaurants, we handle services.

And it's all through the same interface that brings the entire business together, whether its online or through ups or through marketplaces are offline transactions as well and the reason why I called that out is because a lot of the newer businesses that were seeing are crossing over.

From these categories. So we have retailers, who also provide services and.

Restaurants, who also handle do retail type things.

And restaurants during doing more services as well. So I think that is what is compelling about our model.

But it really sets us apart from from over appears as well and again that leads back to those those are the sequel system model, though that we've been building.

So we are making a bunch of progress on it.

We it's worth noting that we're we're we're not limiting ourselves to one category of seller.

And we want to make sure that we're managing for all the flexibility of how.

Businesses, and merchants and sellers evolve overtime, because that will ultimately lead them to drive more so just to add to that Bob to your point of your question about progress on square online store one of the metrics that we are encouraged by an early metric is that square online store is becoming an entry point into the broader seller. He goes.

System and its driving a similar amount of net new sellers to square as other products like point of sale. So you can have a seller who is already a part of the seller ecosystem. Then you know possibly of the shop and now wants to expand online and their joining square online store, but you also have net new sellers, who are coming online with.

Yes through square online store in our joining this the square ecosystem as a part of that.

Okay. Thank you very much appreciate it.

Thank you very much.

Our last question comes from Joseph Foresi with Canaccord. Your line is open.

Hi, I was just and I don't want to take anything away from the analyst day, and give you an opportunity to.

Plug it as well, but on the cash upside.

Was wondering could you give us a little bit of color, maybe a sneak preview on what the next functionality.

For that half is going to be.

And then just on the margin profile of that business any thoughts around timeframe of when you might think about when it might scale. Thanks.

Well, we hope to see you analysts say so we can give you all that color.

No surprise anyone but.

I think generally generally from high level.

Where we talked about during your opening remarks is.

Is the model that we.

So we follow and that as we have a really compelling self reinforcing.

Model, where people can grow the network, just simply by sending and receiving money.

And we see markers of this all the time I'm just just looking out the App store on a Friday, which has paid a for a lot of people within within this country.

Sends us.

Off the charts very quickly.

So we've traditionally looked at what are the most critical needs that we can also add as adjacent sees that also reinforce the peer to peer aspect and that the peer to peer aspect allows.

Two.

To allows us to do.

So thats, how we came up with storing money in card and that led to idioms and direct deposit.

Which all led to the coin and investing.

So we kind of just look at all the opportunities out there.

That would fit within this ecosystem and also reinforce it and make judgments based off but I.

I am really I'm really happy not just with the breadth.

Of what the cash up team has been able to do but also the quality and the creativity in their approach.

It is netted out to be.

Immensely enjoyable experience, but also is really impactful for the for the people that were serving.

From a very mainstream audience.

In this country.

To folks who have not had access to the financial system in the past.

Now I'd just add on Mart on your question on margin profile, it's important to remember that three and a half years ago Kashyap had de Minimis revenues and we really started monetizing this business in the past three to four years and we're now I'm looking at an ecosystem that has 24 million monthly active customer.

Chris and his over 700 million dollar a year revenue run rate ex decline. So the team has ramped up.

Very quickly as Jack said by ramping its products and its customer focus and in terms of margin. A you know each of the years that we have been monetizing over the past three years. We've also seen margin improvements in each of those years and we expect to see the same in 2020, but our focus today first in form.

Most is to continue to scale this business and get it in the hands of more customers with even more product functionality.

Thank you.

Thank you.

I'd like to turn the call back over to the company for closing remarks.

Thank you everyone for joining our call I would like to remind everyone that we'd be hosting our first quarter 2020 earnings call on May six thanks again for participating today.

Ladies and gentlemen, thank you for participating.

In today's program. This does conclude the program you may not all disconnect.

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