Q3 2022 Block Inc Earnings Call
Is that the Bloomberg any room or do you want <unk>.
Cause that rack on your fingers.
You can't reach a hand and get new parts.
Good day, ladies and gentlemen, and welcome to the block third quarter 'twenty to 'twenty two earnings conference call.
I'd now like to turn the call over to your host Nikhil Dixit head of Investor Relations. Please go ahead.
Hi, everyone. Thanks for joining our third quarter 2022 earnings call, we have Jack and Amrita with US today, we will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from our customers. In addition to questions from conference call participants.
We would also like to remind everyone that we will be making forward looking statements on this call.
All statements other than statements of historical fact could be deemed to be forward looking.
Actual results could differ materially from those contemplated by our forward looking statements reported results should not be considered as an indication of future performance.
Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ.
Also note that the forward looking statements on this call are based on information available to us as of today's date we.
We disclaim any obligation to update any forward looking statements, except as required by law.
During this call we will provide preliminary estimates of gross profit growth performance for the month of October .
These represent our current estimates for October performance as we have not yet finalized our financial statements for the month of October and our monthly results are not subject to interim review by our auditors.
As a result actual October results may differ from these estimates.
Moreover, this financial information has been prepared solely on the basis of of currently available information by and is the responsibility of management.
Preliminary financial information has not been reviewed or audited by our independent public accounting firm.
This preliminary financial information is not a comprehensive statement of our financial results for October or the fourth quarter.
Also we will discuss certain non-GAAP financial measures during this call.
Conciliations to the mostly most directly comparable GAAP financial measures are provided in the shareholder letter Investor day materials and Investor presentation on our Investor Relations website.
These non-GAAP measures are not intended to be a substitute for our GAAP results.
Finally, this call in its entirety is being audio webcast on our Investor Relations website.
An audio replay of this call and the transcript for Jack and Amrita is opening remarks will be available on our website shortly with that I would like to turn it over to Jack.
Thank you all for joining us.
As we've discussed before we are building multiple ecosystems to serve different audiences square.
Square for sellers ketchup for consumers title for musicians and TBD for developers.
What makes <unk> unique is our ability to connect all of these together.
We've made a lot of progress on each and I'll share some highlights from square and catch up before him read his remarks and your questions.
We will start with square.
We realize there is some significant challenges all businesses are facing today, and so giving sellers simple and intuitive tools to remove complexity from running their business is critical.
Our focus on three priorities to achieve this enabling omnichannel capabilities growing up market and expanding internationally.
Core to our strategy is building integrated solutions that give larger sellers a cohesive view of their operations.
They can easily manage every aspect of running a business.
Our developer platform extends our software capabilities by allowing integrations with hundreds of third party products built by developers and partners using our open platform.
We enabled customized solutions for sellers with more complex needs and provide a single platform for developers to take payments with square across mobile and person and web.
We're also continuing to build out vertical point of sale solutions that serve our largest verticals are prudent drink retail and services with square for restaurants square for retail and square appointments.
Together gross profit from new solutions grew 45% year over year much faster than square overall in the quarter.
In Q3, we also expanded the payment message we support.
We launched Apple is tap to pay on iPhone, giving square sellers, a simple way to accept contactless payments with no hardware needed.
And customers a convenient way to pay in Japan. So this can now accept Paypal Q QR code payments. The most popular QR code wallet in the country.
And now for a catch up.
As we shared during our Investor day earlier. This year, we are focused on building seven development pillars to drive cash ups business.
I'll touch on progress we made this quarter in financial services and Commerce.
Within financial services, we want to strengthen our relationships with customers through a full suite of banking products.
This starts with customers being able to easily fund their cash up accounts.
Over time, we have expanded the ways customers can do this whether through direct deposit pay per money check deposits or bank transfers.
Cash half card and direct deposit are two of our most important banking products and we're focused on growing usage of both.
Ketchup card is usually our first financial services product that customers try and often their introduction to banking with cash app.
As of September there were nearly 18 million actives using cash upcard, making up more than 35% of our monthly actives and bringing in half of all inflows across our platform.
In Q3, we made it easier to bank with US customers can now receive an account and routing number instantly when ordering in ketchup card with.
This reduces friction for those who need banking services and has driven meaningful growth in direct deposit customers.
As we continue to deepen the connection between our ecosystems and undertake the complex integration of after pay.
One of the long term opportunities we are most excited for us in commerce.
In Q3, we completed the rollout of our first iteration of the discover tab, making it seamless for.
Customers to search for people and businesses and find offers including instant discounts for merchants, who accept cash okay.
Cash pay lets customers checkout through a simple QR code payment whether online or in person.
After testing cash iPad square sellers over the past year were beginning to broaden cash out pay acceptance outside of the square ecosystem, starting with select after pay merchants.
So early in our journey to transform cash up into a commerce destination that bridges, our seller and consumer ecosystems.
We believe it will take some time to achieve this vision and doing so will bring us back to our original mission to help sellers make more sales.
Finally, we know a lot's changed in our business over the last year, including with the acquisition of after pay and we recognize that understanding our business today may seem complex, especially in a changing macro environment.
We're working to distil, how we invest and operate into a clearer and more cohesive framework to help you better understand our business in 2023 and the longer term.
And Rita will be addressing some of our current thinking for 2023 today in her remarks, but we plan to do so more comprehensively and our fourth quarter call in February and with that here's Amrita.
Thanks, Jack there are three topics I'd like to cover today first an overview of our second quarter results second trends that we've seen across our business in October and third our discipline around expenses.
In the third quarter, we delivered a strong quarter across our ecosystem with gross profit of $1 $5 7 million.
Up 38% year over year, and 46% on a three year CAGR basis gross profit includes a $19 million impact from the amortization of acquired technology assets, primarily related to ascertain and excluding these noncash expenses gross profit was $109 million.
We delivered strong profitability during the quarter with adjusted EBITDA of $327 million.
And the third quarter, our NPL platform, which we acquired through the acquisition of after K contributed $150 million of gross profit split across square and cash App and excluding this gross profit for the quarter was 142 billion.
Up 25% on a year over year basis, and 42% on a three year CAGR.
Cash flow generated $774 million of gross profit in the third quarter.
An increase of 51% year over year, and 84% on a three year CAGR basis.
Excluding RMB NPL platform cash up gross profit was $700 million up 37% year over year and 78% on a three year CAGR basis.
This quarter overall in fluids into cash App totaled $52 billion for growth of 19% year over year and represented our highest quarterly in price and the cash app.
Let's look into the drivers using our <unk> framework across active inflows proactive and monetization rate.
First our network reached $49 million transacting actives in September up 20% on a year over year basis with daily and weekly active growing even faster.
With cash up community pillar, we remain focused on enhancing the viral quote a peer.
<unk> appear with complimentary marketing programs that target new audiences.
Second inflows proactive averaged $1046 in the third quarter, which was relatively consistent with the first and second quarters and was also stable on a year over year basis in both proactive has been driven by continued product adoption with cash a card and direct deposit as Jack mentioned and by expanding our info channels.
We believe driving and tourists for Atkins starts with customers' ability to easily find their cash up accounts through a variety of channels.
Together interact deposit in paper money deposits has made us a growing share of overall.
Reaching 14% plus in the third quarter up from 9% a year ago.
September customers received more than $2 billion indirect deposits into their cash off accounts.
Driven by strong growth in direct deposit active and direct deposit inflows per active compared to the prior year.
Paper money deposits across nearly $3 5 billion.
Deposits through September only a year since launch.
Square generated $783 million of gross profit in the third quarter, an increase of 29% growth year over year and on a three year CAGR basis.
Excluding $75 million of gross profit from RMB NPL platform square gross profit was $708 million up 17% year over year and 25% on a three year take or basis.
<unk> grew 20% year over year in the quarter or 22% on a constant currency basis with a two point headwind to growth from foreign exchange rates.
Looking at our cohort economics, we continue to see healthy retention trends across our existing seller base and the third quarter, we achieved positive <unk> and gross profit retention first square business.
Looking into the drivers it squares third quarter performance.
We continue to drive growth with larger sellers gross profit from mid market sellers is up 22% year over year and 39% on this from your take or basis.
Our developer tools have helped us serve the needs of larger more complex sellers, allowing us to grow up market.
During the third quarter, nearly 50% of Midmarket GTD with generated by sellers connected to our open developer platform.
We continue to extend globally in the third quarter GTD for markets outside the us grew 40% year over year or 55% on a constant currency basis as foreign exchange was a significant drag on a year over year growth across all international markets.
Looking at volume trends by market in the quarter close in Australia, and Canada remained strong while we saw macro related slowdown in the U K.
Now to provide an update on our <unk> platform, which we acquired through the <unk> acquisition in the third quarter and <unk> for our <unk> platform with $5 4 billion up.
Up 10% year over year or 60% on a three year CAGR basis.
Overall growth trends, we've experienced an impact from some shifts from online to in person competitive dynamics as well as foreign currency, which slowed year over year GMB growth by five points in the third quarter as.
As we integrate after pay our teams are focused on bridging commerce across cash App and square and are making steady progress towards our longer term vision.
On a GAAP basis revenue for our <unk> platform was up 6% year over year growing slower than GMB, given mix shift to enterprise sellers and newer markets.
Gross profit was down 3% year over year impacted by $12 million in amortization of intangibles within cost of sale without this impact gross profit would have been more in line with revenue growth.
Losses on consumer receivables were zero point, 96% of GMP during the third quarter, an improvement quarter over quarter compared to one 2% in the second quarter and an improvement year over year, driven by mix shifts as well as enhancements to our risk models and processes during the first half of the year.
We continue to see healthy consumer repayment behavior with more than 95% of installments paid on time.
As we enter into 2023, we intend on simplifying many of these disclosures we don't intend on seeking to RMB NPL performance separately once we anniversary the acquisition of Astra and will also shift our focus away from three year CAGR and towards year over year growth rates as we lap the onset of the pandemic three years ago.
Next an update on recent trends.
On both a year over year and three year CAGR basis October total gross profit growth as expected is estimated to be relatively consistent with the third quarter.
Tober, we estimate overall company gross profit growth of 37% on a year over year basis, including our NPL platform or 24%, excluding RMP NPL platform.
We expect fourth quarter gross profit growth, turning relatively consistent with third quarter growth rates on both a year over year and three year CAGR basis at the total company level.
Now, let's dig into some of the dynamics by ecosystem.
For cash App, we expect the year over year gross profit growth rate to improve in the fourth quarter compared to the third quarter. We saw this play out in October where we estimate cash up gross profit growth, excluding RMB NPL platform improved on a year over year basis compared to 37% in the third quarter.
On a three year take or basis, we expect to see a slight decrease in cash app's gross profit growth in the fourth quarter relative to the third quarter as we lap the launch of <unk> in 2019.
<unk> gross profit growth in October was driven by growth in actives and monetization rate, while inflows proactive was relatively consistent on a year over year basis.
Catch up card continue to have strong momentum on an active and spend per active which both increased on a year over year basis.
For square, we expect the year over year growth rate for gross profit, excluding our NPL platform to moderate in the fourth quarter compared to the third quarter. Given we are now lapping $59 million of nonrecurring TPP gross profit recognized in the fourth quarter of 2021.
Excluding PPP and RMB NPL platform, we expect year over year gross profit growth for square in the fourth quarter to be relatively consistent with the third quarter, which had a 19% year over year growth rate with the same exclusions.
On a three year CAGR basis, we expect gross profit growth, excluding RMB NPL platform to decrease slightly in the fourth quarter relative to the third quarter.
Looking at recent volume trends, we estimate square in GPT in October was up 16% year over year compared to 20% growth in the third quarter and on a constant currency basis, 19% year over year as compared to 22% in the third quarter.
Trends on a three year CAGR basis, one more stable as we estimate <unk> grew by 21% in October compared to 22% in the third quarter.
By region growth in the U S remained relatively stable through October however, we've seen a meaningful slowdown in year over year <unk> growth in our international markets, primarily driven by foreign exchange rates and to a lesser extent the ongoing macro related slowdown in the U K.
In October we estimate that international <unk> was up 23% year over year or 44% on a constant currency basis.
Moving to our planned investments for the fourth quarter of 2022.
Our business trends have remained stable through October we have been increasingly focused on our spend mixed and uncertain macro environment, we plan to reduce our investments for the full year 2022 by an additional $140 million, which brings the total pull back on our planned non-GAAP operating expenses on a year to $599 million or.
25% of our expected step up entering the year for.
For the fourth quarter, we expect to increase non-GAAP operating expenses by $206 million compared to the third quarter.
Looking ahead to 2023, we are still in the process of finalizing our plans for next year and while we aren't quite ready to share specifics. We wanted to give you a sense of how we are thinking about next year.
Over the past several years, we've significantly grown our business and our expense base looking to 2023, we're focused on operating more efficiently and we expect to slow our pace of expense growth meaningfully compared to prior years.
Based on our preliminary plans our outlook includes a slowdown across several areas of our discretionary expenses a continuation in the discipline you've seen from us in recent quarters.
In particular two areas to underscore.
First hiring head count makes up the largest driving driver of our expense base in 2023, we expect a significantly moderate our pace of hiring compared to recent years, which will benefit our financial results on a lag with greater leverage on head count costs expected in the back half of 2023 and into 2024.
Second sales and marketing in 2023, we intend on pulling back on lower ROI more experimental areas, including brand and awareness spend across both our square and cash app ecosystems and continue investing in channels with more proven ROI.
Outside of these one third of our non-GAAP operating expenses include variable expenses, which have historically grown more in line with overall gross profit, including transaction and loan losses peer to peer cost cash up card issuance costs and expenses related to data and our platform infrastructure.
Your line is open.
Yeah.
Thank you nice to the Cvs the strong revenue gross profit and EBITDA here. So I just wanted to.
Build on what you just talked about there I'm really just thinking ahead, I know youre not going to give too much specific guidance for fiscal 'twenty, three but is it reasonable to expect that.
<unk> is now in a position to show some operating leverage.
In 2003, given the less certain macro and you've invested quite a bit it looks like you're getting good returns since the bottom of the pandemic here, but can we get back to operating leverage when we get back to 2003. Thank you.
Thanks for the question is from Ken we are focused on driving long term profitable growth at scale and what that means for us is that we're going to balance growth and margin.
<unk> framework.
And as you know given the significant portion of our business. We've got our investments over the past few years to create products and market again that help us drive that top line growth paired with profitable unit economics across both of our ecosystems. Our preliminary 2023 plans really significantly moderate those.
That expense growth as we focus on balancing growth and profitability longer term. We do we will continue to moderate that expense growth to drive increased operating efficiency profitability and specifically for cash App. We do expect to see operating leverage next year, we'll have more to say in February of course, as we are still in our planning.
Stages across the business.
Our focus ultimately have on agility as the environment continues to evolve here, we want to remain agile and be able to adapt to what we're seeing and we <unk>.
And on maintaining the discipline that you've seen so far this year with the pullback in discretionary operating expenses, particularly in those areas that are less efficient or Conversely, lean into areas, where we are seeing attractive returns and that enable us to grow our business in a profitable way over time.
We've proven that ability to kind of dial back expenses in real time. So far this year, we pulled back almost $600 million about 10% of our planned opex space are 25% of the step up.
We haven't seen returns are where the returns are less certain in order to deliver more near term profitability that gives us the confidence in our ability to continue to invest in and help us determine how much is needed to drive that next incremental dollar of growth.
And where we should be prioritizing our investment over time.
Got it thanks for going through that.
Your next question is from the line of Lisa Ellis with Moffett Nathanson. Your line is open.
Okay.
Terrific. Thanks for taking my question I, just wanted to follow up that call out in your shareholder letter in the prepared remarks about the 18 million monthly cash at card users you now have 35% of total monthly active.
Can you elaborate a bit on the nature of the cash card users. So for example, do you have a sense for how many cash card users you now have using the cash card as their primary debit card or like are these banks consumers or is this their primary bank account and.
And what steps are you taking to kind of keep building out the wallet share of those cash card users I think you had highlighted at Investor day, They drive something like five times as much gross profit as as a noncash card user.
Thank you.
Anyway. So thanks for the question I can kick off here.
Driving product adoption for us across our banking products is one of our primary focus areas within our cash app pillar around financial services, and we experienced strong attach rates here.
These financial services products allow us to really deepen our relationship with our customers beyond just peer to peer and serve them more holistically related to their finances. So specifically for cash App card as you note 18 million monthly actives in September growing 20% or sorry, growing strongly and now growing in terms of attach at 35%.
And of our monthly active during the month.
And also with strong engagement in September cash up card active mid 16 purchase during purchases during the month on average so we're seeing our customers using their card on average every other day.
And really with broad based utility with customers' spending across.
A diverse range of used cases gasoline utilities restaurants and grocery various retailers.
And with spend has increased over time on a per user basis. So in the third quarter spend per active grew on a year over year basis, bringing whereas we see our customers, bringing more of their spend to cash card.
And as Jack noted cash card customers accounted for about half of overall inflows into cash out to your point about the importance of this customer base to our ecosystem and these customers have also significantly higher monetization rate compounding together as they bring more inflows at a higher monetization.
Right to drive even greater gross profit from this cash upcard customer cohort.
Maybe the final thing I'd say here is that cash that part as an important way for us to bring cash up to greater top of mind from a financial services perspective, certainly top of wallet for our customers' bigger part of our core offering as we graduate our customers from peer to peer into the ease of use of our financial services products and <unk>.
See that really resonated with younger demographics, but also as a way to drive greater adoption and to other banking products like direct deposit where we have now eliminated a friction of allowing customers to create a direct deposit account the moment they sign up for cash a card and which has though it's still early days as meaningfully.
Increase the adoption of direct deposit as well for us. So it's important in and of itself, but also important as the gateway to adopting other banking products within cash app.
I'll just say to your question, we don't have the data on whether were primary against other.
The cards are other banks, but that is certainly our goal.
And I think we have a better strategy.
Over the long term.
We're not we're not.
Not just your card we're not just savings.
Our other features that we offer including.
The discover tab to find commerce bitcoin stocks.
Deposits.
People peer to peer obviously, which is.
The easiest way to send money to anyone.
People come in for various different reasons and they will find our other services.
And ideally those services resonate even more.
Our goal first is to be first consideration for any one of these services, including the cash upfront.
But over time.
We want to work towards being primary because everything that you need in your financial life, you can find with some catch up so that is that as a goal that's what we're focused on.
And I think we have the best strategy to get there.
We have Ali tennis square seller dialing in to ask a question. Please go ahead. Your line is open.
Hi, Jack Thanks, So much for taking my question My name is Sally and I own Sugar lab bake shop in Ventura, California, we've been using square to run operations at Sugar Labs for the last 10 years, which is as long as we've been in business, we've grown to over 45 employees over the years not currently but we do use several square software and hardware products.
Including stand point of sale marketing loyalty savings payroll and more pretty much everything and then I'm also a square supers art. So my question is as the tight labor market continues in the food industry, we have fewer bakers and kitchen staff. This year, how can square help us prepare to handle the seasonal rush and waterways in.
Which I can attract talent in time for the holidays, especially given that we're competing with larger businesses.
Thank you and congrats on your business.
I think I think the biggest thing here is anything that we can do from a technology perspective.
To give you time back first and foremost to make sure that.
You are not wasting a bunch of time hooking up different systems and fiddling with interface.
The solutions, we provide are intuitive and they get easier and easier and potentially even more automated.
So that you can focus more on what you have in doing a whole lot more with with less so.
So that is the first part and we're focused a lot on.
That internally, but they're also products that will take some of the workload of you such as self serve ordering and.
Square payroll on demand pay.
And also making it much more efficient for your employees or team management product I don't know if you use that yet.
Focus a lot of energy on making sure that.
And the employees in Europe , 45 for the state where it could be quite useful.
They have all the information they need to help you operate and run the business very efficiently.
All of these things that we're doing today, we're going to continue to.
Improve with more automation more artificial intelligence that you can turn on and off and really make informed decisions around how you run your business.
As you continue to grow your business becomes more and more attractive to more people so by focusing on your customers.
And making sure that you have your time focused entirely on that instead of all the operational capacities.
Needs of your business, which is where we come in.
Your business gets more successful more people want to join so.
Thank you for using square and we'll we'll keep at it.
Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.
Hey, guys. Thanks.
Just following up a little more on cash app.
Combination of monthly active users shrink continues as well as the gross profit it looks like attach rates. The card was a key part, but if you could just remind us on what you see is the real opportunity there in terms of attach rates on different products and what really what the path is for <unk> when layering in not only what you've already done on the sort of the financial services side, but also what kind of.
<unk> cash can be and how the progress is going there too.
Thanks, guys.
Hey, Darrin thanks for the question.
So let me start with kind of where we are in terms of <unk>, which is another metric you can measure along with the overall influence frameworks and then talk about where some of our product priorities set.
Based on where we are driving.
Key key element of being inflows framework forward.
So from an <unk> perspective gross profit per active excluding the NPL platform was $57 in the third quarter up from 53 in the second and $50 in the first quarter. So we are continuing to see growth there in part driven by our monetization rate in part driven by the ink incur.
Utilization of the platform strong engagement on the cash App platform.
You break that down across.
Our inflows framework.
What we look at as Actives, where we've continued to see strong growth inflows proactive, which we've seen continued stability. Despite now lapping some of the significant government disbursements and even some of the seasonal tax benefits from the first half of this year and then monetization rate, whereas I said you know we have some products, where we can flex our pri.
<unk>.
And some products, where we are driving engagement and driving utilization.
That inflows framework is really clarifying cross in terms of our product roadmap and where we see the traction across each of those variables and so the three top products development period are pillars that I'd call out our financial services network growth and trust in terms of being able to.
Continue to drive the cash that platform forward from a financial services perspective, as you've noted we've seen growing adoption here and that's a key top priority for us into 2023 to see continued adoption of these products across not only catch up card and direct deposit where theres a lot more for us to do their strong traction but continued.
Runway ahead, but also through some of the newer products that are continuing to take hold like cash up pay as you noted.
Where we see 60% of cash or pay volumes and now from customers, who arent active in cash up card showing that strong brand affinity for our products.
And even a strong attach product like cash card.
And also for products like cash that borrow which we're still in the early days of ramping and where we've seen strong growth with profitable unit economics from our network growth perspective, our priorities here is using our core differentiator, which is the network effects inherent in cash app.
Two.
Really bring customer engagement out and enable our customers to engage more with their network and with each other.
Including bringing others from their network into cash App and then from a trust perspective, we've evolved relatively quickly from a peer to peer app and new financial services App and trust in our platform is extremely important as customers bring more of their money into the App and start another key focus for us as we drive our inflows framework forward and ultimately as we drive our pull forward.
As well.
Your next question is from the line of Timothy Chiodo with Credit Suisse. Your line is open.
Great. Thank you for taking the question I wanted to talk a little bit about cash app customer acquisition costs. So it's taking us back to a comment that you made last quarter. You mentioned that <unk> was relatively stable versus 2021, which is at the time you had mentioned the $10 blended CAC number. So we were a little bit surprised to hear that simply because you have been moving more towards.
Building density with higher income customers and making the direct deposit push than we would've expected that to maybe come up a little bit.
If you could just talk about what some of the offsets have been how you've been able to contain those customer acquisition cost clearly the peer to peer network as a part of it but maybe some of the other drivers boost after bay and then broadly to the extent you can if you could give us an update on gross adds and churn trends for the cash out base overall.
Yeah.
Hey, Tim I can kick us off here. Thanks for the question.
We've continued to see relative efficiency in terms of our sales and marketing spend here with a cost of acquisition for net new actives in line continue to be in line with what we saw in 2020 'twenty. One as you noted that $10 sort of customer acquisition cost range.
We are looking to drive new demographics, we are looking to drive higher product adoption at the start with our new customers and we are looking to bring in higher lifetime value customers.
Seeing some of that play out now in some of the trends that you've seen today.
Including across the financial services offerings cash card and some of those core offerings that have become a bigger part of our product adoption earlier on in the customers' lifecycle, we're pairing that with being disciplined in our spend.
We're focused on the channels that we have the most confidence in in in driving the greatest returns.
And are prepared to be flexible on that moving forward. Ultimately, we think theres a tremendous opportunity from an active perspective to continue our growth here. If you think about digital natives Gen Z and millennial customers know they make up a significant portion of cash app customers. We are still only penetrated into 20% and Gen Z.
Millennial customers and as with the U S population as we shared at our Investor Day in March. This is the fastest growing demographic for us and monthly active over the past few years, but there's so much more we can do here to bring the other 80% into cash app over time too.
Your next question is from Michael <unk> with Goldman Sachs. Your line is open.
Great. Thank you very much for the question I was just wondering if you could expand on the inflows strategy for cash App.
Really encouraging to hear the stable inflows practice, despite the tough comps and I believe the year over year declines in July .
So could you talk a little bit about things on the roadmap to drive inflows and direct deposit actives.
For next year for instance are there any meaningful improvements to drive engagement on catch up taxes for next spring.
And then as a quick follow up I was just wondering if you could update us on the.
Direct deposit monthly active number I think that was wanted to have at the beginning of the year. Thank you.
Sure I'm happy to get started maybe with framing up our inflows framework and then we'll dive into some of the greater detail on direct deposit.
So the inflows framework again active inflows practice monetization rate you can think of the key drivers of inflows proactive being the spending power of our customers and then our share of wallet of our customers.
And so there's sort of two variables for us to think about there both in terms of the customers that make up the mix of customers on our platform and then our ability to engage those customers across our products.
What we've seen in the third quarter at continued stability and in close track of it over a thousand dollars.
But growth on a three year CAGR basis at 17%, which we've seen for most of this year is that growth in the mid teens is really encouraging healthy trends across our cash up customer base.
Even as we move past periods of stimulus and tax refunds.
We think ultimately there's so much more room to grow its influence proactive number by having multiple inflow channels and cross selling more of our products to our customers specifically these financial services products like cash card and direct deposit.
And with direct deposit as we noted $2 billion in September of direct deposit volumes those volumes grew by more than 65% year over year in September as we've begun to reduce the friction on account creation after customers sign up for their cash App card.
So this is a key focus for us as we continue.
With our strategy of enabling our banking products to our customers cash up cards, a big part of it direct deposit another key part of it and as a result direct deposit plus paper money deposit, which is another inflow channel we've opened up.
Boeing as a share of total inflows, making up more than 14% of inflows in September versus 9% a year ago.
Your next question in terms of.
Alright, sorry, I just wanted to follow up there.
In terms of the.
In terms of the roadmap ahead.
A lot of a lot of what you saw with <unk>.
What we did over the past year with an obligation.
Meant to exactly.
Bring more of this to life.
It's even more accessible.
And easier to find how to turn on direct deposit for instance, if you get a catch up right now.
We have a direct deposit number so there's a number of things we can do to optimize for what we're doing in the interface itself. So that people are more aware that we have this offering in the first place and we will continue to add features and products.
So <unk>.
Coexist with existing ones that people are using it.
Keep in mind that a lot of people.
Ketchup start with just a very simple I receive money from a friend or family member or I want to send money.
To a friend or family member and then it's our opportunity to really showcase everything else, we have to offer including the catch up carbon including direct deposit.
<unk> catch up taxes, and the easier we make that and the more tips, we add in the interface.
The more compelling.
The outcome, we will have.
Your next question comes from the line of Rena Kumar with UBS. Your line is open.
Good afternoon. Thanks for taking my question I'm curious to understand the progress you've made in combining two powerful ecosystem cafe pay and after pay how is organic growth of cash have trended and what are the next steps for a full integration here.
Yes so.
Our big focus here is on is on commerce.
Linking our two ecosystems through after pay is the most the most compelling option that we've found in the market.
We believe.
This is a perfect blend of everything that we can offer to sellers, including away for them to drive more sales and also new discovery and new opportunities for customers.
Which also.
Some discover square merchants and merchants all around the world, especially when you consider.
Online commerce and digital Commerce.
Our long term vision is to build a more dynamic checkout experience.
Which enables a much more fluid checkout than what you see today.
We recently introduced the discover tab and the catch up.
See this is a complete start our goal here was to introduce people to the concept.
We're not there yet with the experience think of this as more of them.
Our search engine that we're trying to optimize and iterate superfast on to make sure that when people go go there there.
We're looking for something or we can display a relevant content based on their location and it gets more and more efficient more effective.
Ultimately leads to a purchase so that as that is our goal. We're just starting a lot of that work right now.
We intend to make it a place that is instantly relevant over time and this will take some time, but.
This is this will really unlock a lot of what we hope to a market in both the cash app ecosystem and the square ecosystem and be beneficial to our square sellers, but also more broadly for the catch up catch up customers as well.
Your next question is from Trevor Williams with Jefferies. Your line is open.
Great. Thanks, Good afternoon, I wanted to ask a follow up on margins, particularly in seller square because with more of the growth there coming from larger merchants and then international which I think both are higher CAC, how should we think of the growth versus margin tradeoff. There. If there is one.
Is there still more that you need to do.
To invest behind either of those markets, whether it's the sales force your brand marketing just trying to get it ultimately what you expect the margin impact to be over time as the mix continues to skew more towards international and larger sellers. Thanks, so much.
Whichever I can kick off here.
So look our scores business is fairly high structural margin business as we shared at Investor Day, you know what a 69% structural margin in 2021. When you can think of a significant portion of every dollar of topline growth drops down to profitability.
Where we are orienting our priorities.
Is where we are seeing the strongest returns in terms of our growth whether it's omnichannel products moving upmarket with larger sellers are mid market sellers are now 40% of our GTD growing at 22% year over year and international which also growing 40%.
Some of the key products that underpin growth with larger sellers like vertical points of sale.
Growing at 45% year over year, so each of those strategic priorities for our square business.
And that we're investing behind our driving stronger growth in the overall base.
Now we expect in 2023 to moderate the pace of some of our investments across sales and marketing and product development in order to continue that balance that growth and profitability as we spoke about earlier.
Whether it's across hiring sales and marketing, where we would be pulling back on some of that brand marketing.
And have a stable to increasing mix of our investments on things like sales teams as we focus on optimization and as we focus on.
Building with our upmarket sellers, bringing more of those larger sellers onto our platform.
As well as our product development investments, where we are really.
Expanding the reach of our platform and the cohesiveness of our platform. So we can take to work off our sellers plates and focus on some of the key products that are truly resonating as you hear today the vertical solutions the developer platform, our omni channel software.
So those are some of the key focus area for us of course, we want to remain agile with our spend and be responsive to what we see in the potentially changing macro environment.
But we are seeing traction in the areas, where we are most strategically oriented.
Your next question is from the line of Josh Beck with Keybanc. Your line is open.
Thanks for thanks for taking the question actually a follow up along those lines as well.
<unk> for the square seller business, obviously, you made a pretty substantial.
Investment last year.
Sales, you've obviously had more more time see the payback and obviously.
Glenn with the other go to market strategy. So.
As you look forward to 'twenty three.
Based on kind of the lessons that you've learned how important is that outbound motion.
Within the square our go to market.
Okay.
Hey, Josh happy to double click on this and maybe I'll address it more broadly our go to market approach for the core business.
So our focus maintaining target paybacks of about a six quarter payback and target returns of about three X ROI as we evolve our go to market strategy to support the growth up market.
2022, we've pulled back on some of the lower ROI areas and Recalibrated, our spending mix into channels, where more proven ROI. So what does that look like across each of the areas.
From a sales perspective, we're focused on optimizing our sales channel, which with more predictable returns and where we have the ability to measure performance. We believe our sales team and will ultimately be a long term core engine of growth for the business.
And there's kind of three key strategies for enhancing our growth up market using our sales team one of the vertical position or a team so creating pod around specific verticals retail restaurants services, where you see we're gaining traction with our vertical points of sale today to enable those account executives to go deeper.
<unk> and the needs that are specific to each of those verticals.
And expanding our outbound sourcing capabilities. So that we can reach out and make sure that these larger sellers have a better understanding of all of them anything that square can do for them today.
And then third introducing more automation into our tooling to enable our sales team.
To have better information as are reaching out to these sellers, which ultimately then can help drive greater efficiency from an international perspective our.
Foremost tenured international markets are pacing at these healthy payback periods that we're targeting are three more recently launched markets in the last 18 months do have longer payback periods, whether we're looking at our marketing or sales.
We are introducing our ecosystem into those markets.
And building our awareness from a performance marketing perspective. This is really the core engine, which continues to drive stable proven returns and historically has been a significant driver of acquisition. So that's really giving you an orientation of our overall go to market efforts and sales is a key piece of that.
Your next question is from Ramsey El <unk> with Barclays. Your line is open hi.
Hi, Thank you so much for taking my question Tonight I wanted to ask about vertical solutions and whether there is a long term roadmap to expand the number of verticals that you support and then separately I just wanted to ask Amrita about the potential to maybe be more actively leverage the customer account balances to drive more float income it looks like you guys used to keep more.
Cash more funds in the money market versus sitting in cash I'm. Just curious if that's something that we could see more of them in the future to drive some interest income. Thanks.
So yes.
There are three vertical point of sales right now and services or square for restaurants square for retail unemployment appointments.
We're always looking for opportunities to first and foremost expand these.
And add more features add more services to each one.
To continue to.
Make sure that we're serving the need for the particular service.
But also looking for other opportunities for more vertical services, but first and foremost, it's making sure that we remain competitive and we're ahead in terms of our feature set.
And making sure that we're continuing to work to optimize these services for our customers.
Thing that we've talked about in the past on these calls is one trend we continue to see.
Is that.
The vertical aspects of these things tend to blur a little bit.
The restaurants.
Adding retail like services.
Appointment type businesses, adding are emerging with like restaurant type services or retail as well so the benefit of our ecosystem is we're not focused on just one.
We're focused on all three and more generally how you operate your business how you operate a team.
And ensuring that we're giving you tools no matter what business you choose to begin to make the sale and make more sales ultimately so that is our goal.
Everyday answering the question how do we how do we help sellers make.
Make more sales in some cases these vertical efforts.
Efforts make more sense, but.
The most compelling trend that we're continuing to see is the blending of all these things and that's where our ecosystem mindset really shows the strength.
And Randy just to follow up on your question on float or interest income the majority of our cash and our customer funds is variable to interest rate fluctuations by a pretty diversified portfolio of accounts.
Majority of which are relatively short term, which allows us to capitalize on increasing yields. So in the third quarter interest income increased as a result of obviously higher interest rates.
And we expect to continue to benefit us as many of our investments lag on interest income pick up just to maybe break that down for you across our corporate balance sheet and customer funds from our corporate balance sheet standpoint interest income was $15 million in the third quarter, that's up from 9 million in the second eight.
And the first majority of our cash here is variable as I said to interest rate fluctuations either via fixed income T. Bill government money market accounts are noninterest bearing accounts and earn an earnings credit rate and much of the interest income and net interest income flows through to the interest income in <unk>.
Fence line, which is below the EBITDA line.
From a customer funds standpoint cash up customer funds does generate interest income as well, we had $7 million in the third quarter up from less than $1 million in each of the first and second quarters.
The majority of these funds are invested in very short term accounts or money market accounts and they flow through cash app revenue and gross profit line.
Your final question comes from the line of Andrew Jeffrey with Truest Securities. Your line is open.
Hi, Good afternoon I appreciate you squeezing me in here towards the end.
I wanted to ask about the square business and the competitive environment in <unk>.
How much of the growth is coming from competitive takeaways.
Who are the companies that you generally see at the point of sale. How much is net new business creation, just trying to get a sense of kind of the way the market's evolving competitively and how you think youre positioned.
Yes.
Okay.
Andrew maybe I can kick us off here.
What we see is is stability and our trend lines.
It's a it's a it'll depend on each products as to who our competitors are we don't see a competitor out there who has the breadth that we have across our ecosystem.
And really it's that diversity.
Products vertical channels and customer types that we have that we believe is the most resilient, particularly as we may be entering.
Volatility time from the macro perspective.
So what we saw in the square ecosystem through.
Through October as well.
A lot of stability from Q3 in October to into Q4.
With G P V through October .
In the U S. In particular for some of those discretionary verticals, which were paying particularly close attention to retail restaurant services on a three year CAGR basis with stability.
Now of course from an international perspective, we don't see this as a necessarily competitive.
Issue, but from a FX perspective, we're seeing some headwinds there as are many other companies and from a macro perspective as we noted in the UK.
But more broadly when you look at the square ecosystem ex PPP as we noted which is a nonrecurring benefit.
In Q4.
<unk>, we see stable rates of year over year growth in square gross profit from Q3 into Q4.
And again from a competitive perspective, we are we believe we're fairly disciplined differentiated given the diversity of customer types product types that we serve.
Yes, I would I would say that.
Generally.
Certainly areas across our verticals or.
Across some of our products, where we where we're behind competition somewhere where it had been on and that I think as Amrita said, we're we're much further ahead over the long term.
Because of that ecosystem mindset because of the breadth of the tools that we offer.
And most importantly, how easily they integrate together.
Literally a button push to turn things on or off.
And that includes a wide array of services from lending to.
Customer relationship management to vertical point of sale hardware.
So this is where I think things really matter.
Our business no longer has to go vendor to vendor to vendor, but that can come to one one place that can come to square and they see pretty much everything they need.
It does mean that we are going to be slightly slower enrolling at.
All of the features for each one particular vertical.
But it also balances that with a much higher quality of integration, which ultimately ends up taking a whole ton of it gives us a whole ton of time back to the seller so that we see much.
Much much better retention than a lot of our peers.
At this time I would like to turn the call back to the company for closing remarks.
Thank you for joining that concludes our call. We will see you for our fourth quarter 2022 earnings call on February 23rd you can now disconnect.
Ladies and gentlemen, thank you for participating in today's program. This does conclude the program you may now disconnect.
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