Q4 2022 Block Inc Earnings Call
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No.
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Right.
Yeah.
Good day, ladies and gentlemen, and welcome to the block fourth quarter 'twenty to 'twenty two earnings conference call I would 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 fourth 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 these forward looking.
Statements include discussions of our long term targets and goals, which are subject to risks and uncertainties and we may decide to shift our priorities or move away from these targets and goals at anytime.
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.
Note that the forward looking statements on this call are based on information available to US as of today's date, 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 months of January and February . These represent our current estimates for January and February performance as we have not yet finalized our financial statements for the months of January and February and our monthly results are not subject to interim.
Review by our auditors.
As a result actual January and February results may differ from these estimates Mauro.
Moreover, this financial information has been prepared solely on the basis of currently available information by and is the responsibility of management. This 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 January and February or the first quarter.
Also we will discuss certain non-GAAP financial measures. During this call reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter in Investor day materials 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.
Our last earnings call, we committed to sharing our investment framework will spend the majority of our entry remarks on that instead of a review of our last quarter, which you'll find in our shareholder letter we sent out about an hour ago.
There are three principles guiding our investment framework number one.
Our investments are focused on customer retention and growth.
Number two.
For ongoing cost of the business, including stock based compensation.
And number three.
The industry standard conventions that are simple to communicate and to understand.
Using these principles our investment framework can be articulated in a single sentence.
And each of our ecosystems must show a believable path to gross profit retention of over 100% and.
And rule of 40 on adjusted operating income.
This is an ambitious goal, especially at our scale and one we arent meeting today.
We're sharing this today to provide full transparency into how we wanted to drive the business and how we want to be held accountable in.
In the coming quarters, we will provide more details into our strategies and plans for how we're moving the company towards achieving this goal.
I wanted to take a moment to share why we believe this is so important before and Rita dives into where we are today and what it means for operating our business.
Our ability to retain a customer over time tells us a lot. It says we find product market fit.
Set of services and features.
Providing the right customer support we're able to efficiently cross sell into more products and we have the right pricing.
In the simplest terms it means that our customers find value in our offerings and want to stick with us.
Historically, both cash up and square have delivered positive gross profit retention.
We made another achieved this in every period due to macro shifts for instance, we saw squares retention dip in 2020 due to the pandemic before recovering next year.
But over the long term, we expect the average annual gross profit retention of our ecosystems to be above 100%.
To complement retention will continue to measure customer cohort economics to assess each stage of the customer journey.
We assess our efforts to efficiently attract new customers by looking at returns on investment a factor of both growing customer lifetime value.
And appropriate aligning our customer acquisition costs.
Together, the combination of efficient acquisition and retention leads to greater gross gross profit growth for our ecosystems.
Turning now to the second component of our investment framework, which is rule of 40.
We want to further raise the bar on our growth rates and our efficiency.
Measuring our ecosystems on gross margins as the best framework to enable this.
Our growth plus margin framework provides flexibility for products and businesses at different stages of maturity.
As a useful and universal formula for evaluating each of our ecosystems with different growth trends and margin profile today.
And for those we might launch in the future.
It also ensures accountability when we increase our investments this framework forces us to think critically about the expected returns and.
And if growth slows and encourages us to adapt.
With more discipline or to pursue different investments.
It pushes us to think creatively using new technologies or distribution models to create efficiencies and do more with less.
Historically, we've looked at gross profit growth plus adjusted EBITDA margins in.
In 2022 blocks gross profit growth plus adjusted EBITDA margin was 52%.
Or 42% when excluding Apple pay which provided a one time benefit to growth last year.
While adjusted EBITDA margin is one of the key profit disclosures. So we focused on in the past we recognize.
It excludes certain expenses like stock based compensation, which is a real meaningful ongoing costs to operating our business.
It isn't a cash expense, but it's a real expense. So we're going to include it in how we assess our investments and performance and to do so we are developing better signals around it.
As a result, we are shifting their focus to an adjusted operating income margin.
With this metric profit margins will include certain noncash expenses like stock based compensation and depreciation and amortization.
With rule of 40, we are targeting to some of our gross profit growth and adjusted operating income margins to be at or above 40% over the long term.
This target a place to block at the overall company level as well as as well as each of our ecosystems.
Parison for 2022 blocks gross gross profit growth plus adjusted operating income margin was 33%.
Our 23% excluding after tax.
Finally, we wanted to be able to communicate this in a way that's easy to understand using methods that have been widely accepted by the investment community.
Gross profit retention and the rule of 40 target are both clear and balance each other in a way that aligns our customer interests with those of our investors.
They provide a clear way for it's for us to determine whats working and whats not working as we seek to serve more and more customers around the world.
We believe this investment framework will ultimately enhance our ecosystem.
Around the world.
Our ecosystem model by allowing each business to make holistic decisions around their teams and roadmaps and parallels.
It ensures the quick decisions of one ecosystem will constrain the others at.
This model will help us move quicker and be more dynamic with our investments to grow block overall.
And this framework is already informed some decisions for us as you may have seen in our 10-K, we're consolidating our corporate teams people legal and finance into one organization. The Amrita will lead as our Chief operating officer.
This will allow us to be far more focused and efficient as we work to achieve our goals.
And Rita will continue to serve as our CFO as well.
<unk> over to Amrita our CFO .
Thanks, Chuck I'll start with how we're executing against our investment framework the <unk>.
Moving to our expectations for 2023 and recent trends.
Starting with gross profit with Thompson, where a customer led company and gross profit retention is an effective way to reflect this in.
In 2020 to catch up and square experienced positive gross profit retention compared to 2021.
Which is in line with our long term target to Jack outlined.
We measure gross profit retention on a net basis factoring in gross profit growth from existing customers as they increasingly agent or adopt more products net of any churn from customers, who leave our ecosystems into similar definition to the net revenue retention metric. Many other companies use but adapted to our main topline metric which is.
Gross profit.
We look at retention alongside broader cohort economics to both assess the health of the customer base and our ability to efficiently acquire new customers. In 2022, we experienced strong returns on acquisition spend which gives us confidence in our ability to invest for long term profitable growth.
For cash App in 2022, we achieved an efficient cost of acquisition of $10 or less on average as we agreed to a 51 million monthly transacting Atkins in December .
Adding our largest annual cohort of customers on a gross profit basis.
Our historical cash have cohorts through 2020 have achieved rois at six times or greater over three years, while our most recent annual cohorts in 2021, and 2022 are at or pacing at an estimated payback of less than one year.
First square each of our annual cohorts Onboarding through 2020 are at our pacing at an estimated ROI of three times or greater over four years with our 2021 and 2022 cohorts pacing at an estimated payback of six quarters or less.
There are periods over the past year were expected paybacks on our 2022 square cohort stretched beyond our six quarter target, primarily because of increased spend in our international markets and experimental areas.
And then pulled back on these areas and are now seeing paybacks trend in line again with our targets.
In 2023, we're focused on refining scores go to market approach and strengthening our sales and marketing motion.
Taken together, we believe these fundamentals are positive retention efficient acquisition and strong returns on acquisitions, then drive sustainable business model.
Moving to our long term goal of rule of 40.
We expect our path to achieving the 40% growth plus adjusted operating income margin benchmark.
Will be driven by a few key areas of opportunity.
Growth perspective, we're just getting started we have less than 5% share of nearly 200 billion dollar gross profit opportunity across our addressable market with much of the landscape hitting on legacy infrastructure.
We will continue to invest with discipline to unlock growth in each of our ecosystems.
Square cash App. This includes launching new products for our customers expanding into new customer segments and refining our go to market approach across our global audiences for.
For our emerging businesses our principles are the same though at an earlier stage.
Constraining investment for these businesses to less than 3% of operating expenses in 2023 in aggregate and we will look for these ecosystems to show our path to achieving and sustaining rule of 40.
From a margin perspective key opportunities include finding greater efficiencies and share based compensation and our overhead expenses.
We intend on slowing our pace of hiring across the company in 2023.
Within our overhead expenses, we plan to drive leverage across our software and data consumption real estate footprint professional fees and other discretionary areas.
Within our reporting disclosures, we want to bring more transparency to our performance against these targets and intend on introducing new disclosures around profitability on an adjusted operating income basis, and sharing more about segment level profitability for square cash app over time.
Our priority remains driving long term profitable growth at scale and we believe this balanced a compounding growth and margins will help us achieve this now.
Now, let's shift gears to look at our plans for 2023.
Over the past several years, we have significantly grown our business and our expense base. We're focused on operating with efficiency in 2023 and expect to slow our pace of expense growth meaningfully compared to prior years.
We expect to deliver approximately $1 3 billion and adjusted EBITA in 2023 for growth of more than 30% and at least one point of margin expansion year over year.
On an adjusted operating income basis, we are targeting a loss of approximately $150 million for 2023 and expect our adjusted operating income margin to modestly improve year over year.
This incorporates the run rate of trend we've observed in our business up until earnings and our current estimates for performance through February .
In 2023, we expect cash up to expand its margins on a year over year basis.
While we expect squares margins to be relatively consistent year over year.
This is our base case entering the year, we recognize that we are in an uncertain macro environment.
Amidst this uncertainty we intend to hold to our stated profit targets for 2023.
<unk> flows will exercise discipline and look for cost initiatives to call back within our planned expense base.
As we shared on our last earnings call. We are moderating spend in our two biggest discretionary areas.
Hiring.
<unk> makes up the largest driver of our expense base in 2023, we expect to increase our head count by 10% compared to the prior year period, a significant change compared to 46% growth in 2022.
However, given the pace of hiring last year, we expect overall personnel expenses to increase in the mid 20% range year over year with greater leverage on head count costs expected in the back half of 2023 and enter 2024.
Second sales and marketing, we expect overall sales and marketing growth to be 5% to 10% year over year, and 2023 moderating compared to approximately 25% in the prior year period.
Breaking this line item down we expect variable cash up expenses, including peer to peer cost and cash up card issuance cost to grow faster.
And the remaining portion of our sales and marketing expenses across the business to be relatively consistent with the prior year as we drive efficiency on acquisition spend.
<unk> with our remarks last quarter, we will continue investing in channels with more proven ROI and intend on pulling back in other go to market areas.
As we shared last quarter about one third of our overall non-GAAP operating expense base is made up of variable expenses, which have historically grown more in line with overall gross profit.
Not only include peer to peer costs and cash up card issuance costs and sales and marketing, but also transaction and loan losses and expenses related to data in our platform infrastructure.
Next an update on recent trends and some highlights from the fourth quarter.
For the months of January and February we estimate overall company gross profit growth to be approximately 33% year over year on a reported basis.
And we expect growth for the full first quarter to be a few points below that.
As a reminder, we are now lapping the acquisition of <unk>, which closed on January 31, 2022, and as a result, our reported growth rates for January should be greater than that of February and March.
If we look at our performance on a combined company basis, which would include a $51 million contribution from our B NPL platform to January 2022 results.
See stable to improving trends in particular, we see an improvement in January and February gross profit growth compared to the fourth quarter of 2022 on.
On a combined company basis, we estimate overall company gross profit growth in January and February of approximately 25% year over year, an improvement from 21% in the fourth quarter.
And we expect the combined company growth rate of 25% in January and February to be relatively stable for the full first quarter.
We have continued to see the diversity of our ecosystem model provide resilience in this dynamic environment through January and February cash App saw continued strength with stable consumer trends square saw some moderation in growth rates for certain discretionary verticals with greater stability in other verticals.
Let's get into some of these trends by ecosystem. As a reminder, gross profit includes a 50% allocation from RB NPL platform across each of square in cash App.
For cash App, we expect gross profit growth to be greater than 50% on a reported basis year over year for the months of January and February .
In March we expect gross profit growth to slow as we lacked pricing changes made in the prior year period.
Cash up early momentum this year has been a continuation of our strong fourth quarter, we continue to build out our banking offering by introducing savings, which has been one of our fastest growing products on cash on cash card achieved strong growth in monthly active and spend per active and delivered more than $750 million in gross profit.
For the year up 56% year over year, and making up more than a quarter of overall cash out gross profit.
For square, we expect gross profit gross profit close to be approximately 15% on a reported basis year over year through January and February looking at recent volume trends, we saw a moderation in the <unk> growth rates for discretionary verticals in the U S. Beginning in November primarily for food and drink and retail.
And we have seen these trends continue into the first quarter, even with these shifts and macro trend line the square ecosystem, excluding PPP and that would be NPL platform had a gross profit growth rate of 17% year over year in the fourth quarter and is expected to grow 21% year over year in January and February .
As a reminder for the full first quarter of 2022, we recognized $51 million of nonrecurring PPP gross profit.
And lastly, an update on our be NPL platform, which was also embedded in the figures I just noted for cash App and square.
Through the months of January and February we expect GMB growth of 19% year over year, an improvement compared to 14% growth in the fourth quarter.
We have been encouraged by our ability to manage loss rates as losses on consumer receivables remained below 1% during the fourth quarter and improved on both a year over year and quarter over quarter basis behind consistent repayment trends.
In the first quarter loss rates typically see a seasonal increase compared to other quarters, though are expected to remain around 1% for the first quarter.
To conclude our potential is profound across our significant addressable opportunity the ability to grow with our existing customers and the longer term path to grow new ecosystems with all of this opportunity. We have found that constraint to clarifying and can help us execute responsibly and creatively.
With the components of our investment framework, we believe our teams will be able to continue driving product velocity, while prioritizing agility accountability and long term thinking paired with near term feedback loops.
With that we'll open it up to your questions.
Yes.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one.
In the interest of time, please limit yourself to one question.
Your first question is from Tien Xing Wang.
With Jpmorgan your line is open.
Hi, Thanks, so much like the investment framework, especially the inclusion of the up to just the operating income.
And I think it will be well received so I wanted to ask on that if you don't mind just focusing on the.
On the margin and cost side would you have more control over it.
Can you just discuss or talk about the broader opportunity for.
Operating leverage longer term I know you gave some thoughts for 'twenty, three but just beyond that operating leverage overall or maybe even across the two ecosystems.
How should we think about that.
<unk>.
Thanks for the question Tien Tsin I'll start us off.
Our investment framework here is around rule of 40 is really about helping to build.
Profitable long term growth.
And just as important as achieving rule of 40 is sustaining rule of 40.
So we're looking to make investments in our business.
That can accrete returns both for our customers and ultimately for us and for our business model.
Our leverage perspective, specifically to your question.
There are a couple of key things that we're looking at in that I'd point, you to in terms of opportunities for us to find increased leverage across our fixed expense base.
The first key areas that we're looking at our hiring in sales and marketing as you heard on the call today.
We're meaningfully slowing the pace of our hiring growing about 10% in terms of head count in 2023 compared to 46% growth in 2022.
We're putting our teams to work across key important areas to build out our product ecosystem to address.
Sizeable market opportunity ahead of us $200 billion in gross profit opportunity about 5% were penetrated in.
But we're doing it in a way that enables them to be smarter, where they're working more efficient and effective in their work now in terms of how you will see that roll through our P&L because we're run rating. The hires that you made in 2022, we'd expect you to see more of the impact to that slower hiring and the pace of hiring in the back half of 2023 and <unk>.
2024.
The second piece in terms of sales and marketing is around again orienting our spend towards the areas that are more proven and that can impact our customer base and potential future customer segments that we can serve so we expect to slow our pace of sales and marketing spend to 5% to 10% in 2023 relative.
As to where we were at about 25% last year and I think this is an area for us to find continued improvement on and refining our sales and marketing motion across each of square and cash outs.
From an overhead perspective, we're going to be looking across all of our corporate head of corporate overhead expenses from software and data utilization to real estate facilities to professional fees in a range of other discretionary areas now.
Now what that all mean for 2023 is we expect to see one point or greater of margin expansion on an EBITDA basis, and we also expect to see margin expansion on an adjusted operating income basis, but again, if we're going to sustain not just reach the sustained rule of 40 over the long term, we need to continue investing in our business.
And that's where we see opportunities around reaching new customer segments to our go to market motions.
Continuing to take share in our Tam and building new products that enable greater Tam expansion and unlocking new audiences through our emerging initiatives will continue to invest with discipline across each of those areas to ultimately build growth opportunities profitable growth opportunities over the long term.
Yeah.
Great.
Yeah.
Your next question is from the line of Timothy Chiodo with Credit Suisse. Your line is open.
Great. Thank you I wanted to focus a little bit on the restaurant vertical given the competition. There. So you have the square for restaurants vertical offering at the May 2022, Investor day, one of the big themes was the build out of the vertical sales teams and the move upmarket to larger sellers at the time, you talked about Verticalizing the sales team star.
With the inbound teams and then building out further from there I was hoping you could give an update on the progress there the feet on the street effort. How many people were talking about and how the LTV to CAC look for that type of a go to market effort relative to the historical square approach.
Yes.
Hey, Tim Thanks for the question.
So let's talk about our go to market approach for the square business. You know we have targets that we look to maintain across both payback and returns and that encompasses the full set of our costs across sales and marketing across U S as well as international and those blended rates, obviously being three times.
ROI over four years, and a six quarter payback.
And where you've seen us over the past few years be dynamic with that spend and our approach to the sales initiatives that you mentioned specifically throughout the year and I think we will continue to be dynamic here as we are as we read our results and the environment in 2023, specifically to our sales efforts.
In the early stages of building out a software led with embedded financial services sales team.
And this sales team not only has inbound capabilities, but also outbound capabilities were.
We're building vertical <unk> into our team so where in the past we had a more generalized sales team. We've started to now vertical wise across our three key areas of restaurants retail and services and expect this to benefit deal cycle times and win rates over time from an outbound perspective, we're also enhancing.
Our capabilities here around targeting specific vertical and seller sizes, using better data and signals.
That enable our team to be able to reach those sellers at the right time with the right message and we expect outbound sales can be a bigger contributor to seller acquisition over time now. This is a multiyear journey that we're on on Reorienting and building up the sales team and we'll continue to iterate on our processes and tooling, but we are in.
<unk> by the traction that we've had in building our upmarket.
Success through mid market sales and what we're seeing is that our mid market sellers have grown twice as fast in the fourth quarter than the total square gross profit excluding the NPL mid market gross profit was up 16% year over year, excluding DNP L.
<unk> go to market initiatives are starting to resonate and we will be making more progress over time as we continue to reorient, our sales team and pair that with our marketing messages.
Yeah.
Thank you Amrita.
Your next question comes from cash up customer Austin Watson Your line is open.
Alright.
My name is Austin.
<unk> used cash up as my primary bank account.
Got my paycheck.
Direct deposited at least my cash card every day.
And I love the App, but I still have a legacy bank account for no other reason than auto Bill pay.
Sure.
And for me personally this problem could be solved.
If I had the ability to scheduled recurring payments just other cash app customers.
But yes, so I guess the question is.
Are there any plans to enable.
Scheduling recurring payments within cash.
First of all first of all thank you for using cash App.
Curious as your primary.
Banking tool that's exactly.
What.
It's exactly the relationship we have with all of our customers and we're seeing more and more but we're always going to be looking at.
Things that people are trying to do with the catch up that we didn't build like we are.
We have a mindset of looking at the <unk>.
<unk> patterns and I'm sure we.
We've seen.
<unk> for recurring payments to our presence into other customers.
Customers.
Across the board.
And as we see more and more of that.
We tend to prioritize it.
But right now we're really focused on making sure like just the basics are rock solid for every.
Type of customer.
Whether youre just starting.
With a bank account or a savings account or <unk>.
<unk> had one.
And really that's a question of looking at like the limits we place onto.
Want to catch up and.
While we enable to make it super easy for people. So we've been focused on.
Savings accounts, you've been focused on unlimited free withdrawals.
Tim's been.
Paper money deposits.
We don't have an immediate plans for recruiting but.
I'm sure there'll be on the road map at some point in the future. Thank you so much.
Mhm.
Your next question is from the line of Darrin Peller with Wolfe Research. Your line is open.
Hey, guys.
It's great to hear your confidence around the $1 3 billion of EBITDA than pretty much any macro scenario, but if you could just give us a little bit more color on your assumptions for the base case macro backdrop embedded.
And then just on that note I'd love to know a little more specifically gross profit growth embedded in that base case.
Yes relative to the 20% to 25% rates, we're seeing through January into February if you could just frame it in that way and then Jack just a bigger picture question on the sustainability of cash obviously cash card was called out quite a bit and we're seeing a lot of success there, but can you just revisit some of the drivers of sustainability medium term.
With cash card now, 25% to 30% of the mix I think we'd just love to hear more on that thanks again guys.
Hey, Darrin. Thanks for the question I'll start off on sort of our 2023 EBITDA guidance and what are our.
Assumptions are with respect to growth.
In that guide.
So first what I'll share is our 2023 outlook is based on what we've seen so far.
Obviously exiting 2022, and our Q4 growth rates, but also the early part of this year, which we shared with you from a growth perspective, we expect cash up to grow faster than square, which is a continuation of Q1, where <unk> seen consumer trends relatively stable for cash app versus some moderation and a few discretionary vertical.
That we believe are macro labor related for square.
Within cash App, we expect to see.
We think about our inflows framework of active inflows proactive, which is the amount of money our customers bring into cash App and then monetization rates, we expect to see continued year over year growth across each of those three drivers of the cash app business during 2023.
We do expect to see some gross profit growth to slow in March for cash up in Q2 onwards, as we lap some of the pricing changes that we made last year.
Square driver's perspective.
Our focus as you've heard so far today continues to be refining our sales and marketing motion and continuing to grow and take advantage of the success that we've seen in a complaint upmarket with larger sellers building out our omnichannel needs. We've seen now software plus integrated payments.
Has become a significant portion of the square business, 75% of squares gross profit ex PPP.
And so continuing to focus on our strategic areas around upmarket Omnichannel international and refining our sales and marketing motion for.
For the square business.
From a profitability perspective in 2023 by ecosystem.
We are focused on efficiency here.
You have heard we're slowing the pace of growth meaningfully and we also have the ability and a number of levers at our disposal.
To be nimble based on what we see from a macro perspective with those levers.
Now that said by ecosystem, we expect cash up margins to expand which is a continuation really of some years now of improving profitability.
So the cash App business.
We expect square margins to be more consistent year over year, partly due to some of the.
A moderation of growth related to macro impact starting in mid Q4, and given it's already high incremental margins, we outlined those in some great detail during our Investor day last year.
But as you noted in the midst of potential macro dynamism, we intend to hold to these profit targets and if we see growth slow as I noted we have a number of levers that we're.
Scrutinizing and have the ability to pull back prudently, while still investing for growth against our planned expenses.
Yeah.
Hello, Sir.
Yeah.
Right.
Yeah.
Just to clarify the second part of your question Darrin.
Yeah.
But it's now as you guys pointed out almost 30% of the mix of revenues and so what do you think about that business longer term in terms of the driving force of it to keep growing well with whats going on whats going to drive us. Thanks again guys. Thanks.
Sorry.
You broke up a little bit Dan are you on mute, but are you talking about cash app card or other parts of the banking experience I was just trying to figure out gross profit growth sustainability for cash App in general.
How what kind of drivers you see given how strong cash App card has already contributed is it have a lot more to go or is it other drivers.
Yes.
Just to start off and really can kind of put in here as well.
Thank you.
The most important thing for us to grow the cash App ecosystem is to is to continue to find adjacencies.
Financial services the complement one another.
And there is there is certainly aspects too.
Everything that we're doing around inflows direct deposit all these all these utilities and functionality that we're building.
One of them.
It gets people into the ecosystem and drives them in and then our goal is to really cross sell and make sure that like where people are able to.
Yeah.
The other services quite easily.
Might be one that resonates even more like ketchup, Kurt So I do believe the cash occurred has a ton of room ahead of it.
And I do believe it's a great marketing device for us in the same way that the original square reader.
When people see it.
Where they see their friends user or they see pictures over social media for their design to it.
It tends to.
Effectively encourage people to download the app and make their own.
Same way that the square reader unit farmers markets.
So other sellers, who quickly was able to recognize what the power of that thing was alone and then decided to download for themselves, but it's just one part of the equation.
Success to us means such as cash occurred.
That ecosystem.
Gross but theres multiple entry vectors.
That all complement each other in the <unk>.
<unk> one of them contribute to it.
Darrin I'll just add that.
Cash App now has five revenue streams at a $100 million or more in annualized gross profit instant deposit obviously cash up card as you heard at $750 million in 2022.
Bitcoin revenue stream business accounts and cash that borrow and several others that are smaller but scaling like cash I pay as an example, and other banking and commerce products and even within cash App card.
Worried about a 36% attach of cash up card monthly transacting actives to our overall monthly.
Monthly transacting actives in December that's about 18 million actives on on cash App card on a monthly basis.
And we're seeing that catch up part is increasingly top of wallet to our customers with a broad use case in terms of everyday payments.
To Jack's point about Adjacencies, maybe one recent product launch to call out. That's an example of that is our recent launch of peer to peer gift cards.
Where we allow customers to send a gift card from a wide range of merchants to their friends and family, who can then receive it and spend it through their cash App card. It's an example of a product that for you know for US advance multiple development pillars, there's a community aspect to the peer to peer elements and Theres a banking aspect that.
Ties in utility of cash Upcard all.
All while ultimately promoting more commerce within our ecosystem, which is a longer term focus for us, particularly with after pay and our efforts there.
That's an example of an adjacency there are numerous others like our savings accounts, which we just launched in January and is one of our fastest growing products, which is yet another reason for people to bring money into cash app.
And linker debit card and use Roundups and a number of other features that end up creating an everyday experience for our customers through cash up into our banking offerings.
That's really helpful guys. Thank you very much.
Your next question is from the line of Lisa Ellis with VB Moffett Nathanson. Your line is open.
Alright. Thank you for taking my question and thanks for all the detail on blocks investment framework.
Shift from the focus on adjusted EBITDA to adjusted operating income is an important one and I think one that will be welcomed by a lot of investors can you just elaborate a bit more on the why now behind that shift and how it's being operationalized by the beat US. So for example should we expect that we would see these noncash items.
Items SBC in DNA.
Et cetera sort of decline are slow in their growth over time.
The differential there narrows. Thank you.
Yes, thanks for the question.
Sure.
Can really control, but just just from a high level.
Well I know as we talked at our Investor day, but also.
A bit.
In the last quarter.
We realize that our business is fairly unique.
We started with US one ecosystem called square.
And we've added other ones.
Such as cash up title and TBD two of them are at massive scale.
And the other two are just beginning and we intend to create new ecosystems, where the where that comes from.
Inorganic Krishna TVD or an acquisition like like total all the all of these things ultimately go under this purpose of economic component like how do we serve entirely new audiences.
To empower them give them simple tools to participate more fully in the economy.
This is a complex business.
It felt like many others that you probably cover and the reason we wanted to share. This as we wanted to simple way. So we could communicate how we think about investing in ourselves.
Elisa way to help align the interest of our shareholders.
And you all with those of our customers. So what was important to us is making sure that we had first and foremost.
Customer focused metric and that is gross profit retention.
Sure.
We are keeping the customers that we bring into the network and most importantly, we're seeing them buy more and more services within the ecosystem that they started with such as square or going to a completely different ecosystem, such as ketchup and utilizing more and more of our tools and staying with us.
Second we wanted to account for real cost of the business. We've we've heard from a lot of you referred from a lot of the broader investment community.
The SPC.
The way its accounted for just doesn't make sense.
Listen we wanted to.
To really see it as true cost and reported as such and hold a bar to ourselves on making sure that we integrate that as a real cost.
So it's much clearer and more transparent to you.
And then finally.
We wanted to use phrases and words and formulas and.
Concepts that you all are familiar with which is.
Where gross profit retention.
R R.
And we will have 40 really comes through but do it in a way that way.
The bar even more so.
We believe that it's.
It's really important too.
Recognize that this is this is a steady state goal for us.
Not there today.
But it will help us really think about our investments whether they be upscale ecosystems like square in ketchup or newer ecosystems like title and TBD to make sure that we're investing in the right way. So we're customer focused so we're balancing the investment between all these ecosystems in the correct way and ultimately.
We are fulfilling our promise of a model of ecosystem of ecosystem, which means that each one of them positively contributes to the other.
And then where can we continue to disrupt ourselves.
With each one of these ecosystem so I could expect.
Some of our ecosystems like TBD to be disruptive to what we're currently doing within cash App and I'm happy that we're thinking about that before external competitors and thats exactly the model that we want to continue because it ultimately all of this represents.
Resilience.
And so we're just going to use us investment model and make sure that we iterate as quickly as possible to hit it and to keep hitting it.
Yeah, Lisa Thanks for the question, we agree with you that it is a meaningful shift to include stock based compensation and DNA, but particularly stock based compensation and our profitability metrics.
And what we wanted to do here was align our external disclosures and targets with how we're actually running the business internally.
Now include SBC as a part of how our leaders are measured and our business units and business models are measured internally as we think the right level playing field.
Our businesses no cross whether its maturity type of business model SBC is an important part of our compensation model here, we want our employees to be shareholders.
And ultimately that structure enables us to attract and rent and retain amazing talent and invest in high performing teams.
So this shift to adjusted operating income to account for SBC and DNA brings increased rigor to how we manage those costs as the FCC costs and we want our teams to consider sbcs and expense when they're hiring and making those investment decisions over the long term that we expect to drive efficiency.
And leverage from SBC, and historically, our share count dilution just to get into some of the tactics around what we expect to see historically our share count dilution from FCC has been in the low single digit percent range, excluding impacts from converts and we expect this trend to continue of low single digit.
<unk> from normal run rate across our business.
Yeah.
Terrific. Thank you.
Yeah.
Your next question is from the line of Josh Beck with <unk>. Your line is open.
Thanks for taking the question and also thanks for.
Collapsing your investment philosophy.
Kevin.
Thats easy to do for anyone.
But I wanted to ask a little bit about cash out every day I believe you said pretty much all of those three core drivers would be up.
23, the one that I.
I wanted to ask about was the.
Inflows per MAU, you certainly did sites.
And the square business slowdown.
<unk> spend.
But I assume there are offsets things like obviously cash card.
Which I would assume that assuming thats going to thats going to lead to higher direct deposit, which obviously had a really nice step up on the metrics you gave in <unk>. So I'm curious to hear a little bit.
Just about the drivers there as well as the monetization rate certainly you mentioned the pricing changes and Thats had a sizable impact but as we look forward should we be thinking about borrower is a bigger driver or other items around the monetization side. Thank you.
Sure. Thanks for the question, Josh So lets breakdown, our inflows frameworks for cash App and we'll talk in a little bit more detail on one of the three measures proactive to your question.
So starting first with active now at 51 million monthly transacting actives in December that grew 16% year over year, with importantly weekly and daily actives growing even faster overtime, we've increasingly leverage marketing to enhance the.
The inherent virality and our peer to peer network effects and that's enabled us to drive greater acquisition and product adoption for those new customers.
I think with more even maybe more important than the $51 million is that two out of three of those 15 1 million transacting actives.
Using cash up on a weekly basis on average.
And I think that's an indication of the growth of our product ecosystem and the product adoption within it that it's becoming more and more everyday use case.
In terms of inflows proactive we were at $1048 in the fourth quarter, that's relatively stable on a quarter over quarter and year over year basis. Despite lapping a period of government disbursements in the prior period and despite the broader.
Uncertain macro environment ultimately, we're encouraged here by the healthy trends that we're seeing in inflows proactive and as we think about how to grow and posts per active over time I think there is two key opportunities for us in the third mix shift dynamic that's worth pointing out so.
So first product adoption, we can drive more inflows through both cross selling our existing products and the launch of new products as we see our customers take on more products within cash app that generally leads to greater inflows proactive.
Note it in the past that cash upcard active inflow twice the amount of money of peer to peer active and you see that increase as you move up the funnel into direct deposit and other sorts of deeper financial services.
We're also increasing the number of inflows channel for the ways in which people can bring money into cash App. For example through paper money deposits and that will continue to be a focus for us to make it easier to bring your money into cash app and ultimately move it around.
We're also investing more in trust. So this is really important for us as well.
<unk> been prioritizing both increased access as I noted as well as the ability to increase limits for customers, who are looking to bring more money into cash up each week and we ultimately think that'll enable us to drive greater share of wallet and expand into broader customer segments.
The third thing to note around inflows proactive is that we may see a mix shift dynamic moving forward given that we're targeting a younger dynamic with Gen Z and Ive had success in this target with younger customers there'll be some pressure on inflows proactive as these customers are more likely to have lower inflows practice earlier on in their financial journey, but these are also the <unk>.
Customers, who we expect to be the future spenders.
Over the years to come and ones that we want to be a part of in their early financial journey and have the ability to grow with them overtime.
Obviously, the third component of our inflows framework is monetization rates and.
<unk> monetization rate is a factor of both the ability the pricing that we can charge our customers and the mix their mix of usage across our products. We have a number of products that are free we have some products that we charge for as we think about monetization rate and we think of it holistically across the entirety of the ecosystem maybe.
Maybe just the last one I make since you asked about cash card.
We are we see broad based utility for cash App card and as I noted earlier spend per active actually has continued to grow on cash app card and that broad based utility means that we've been able to you know we see customers using across both discretionary and non discretionary use cases, whether it's gas and.
<unk> or its grocery that's about a third of the spend on cash App card over this past year and that enables us to participate wherever our customers are spending.
These dynamic times.
Super helpful. Thank you Amrita.
Your next question is from the line of Mike <unk> with Goldman Sachs. Your line is open.
Hey, good afternoon, and thank you for the question I just have one housekeeping item and then one follow up first it was helpful to get all the January and February gross profit pacing for cash App and seller on a reported basis I was just wondering if you'd be able to discuss those pacing figures. Excluding buy now pay later and then second could you just give.
As an update on the integration of the ecosystems not.
Not only after pay across cash App and seller, but also things like cash I pay on square seller. Thank you.
Hey, Thanks for the questions I'll kick off on our Q1 topline trends so far.
So what we've seen so far this year I think there are two sets of numbers to Orient you to there is on an as reported basis, which is 33% year over year growth estimated for Jan and February .
And as we move into March what we expect to see for the full first quarter is growth a few points below this of course as we lap the acquisition of after pay from Q1 of last year.
I think the second way to look at overall company gross profit growth. So far this year is on a combined company basis, which would then include the $51 million contribution.
From a gross profit perspective for after pay in January of 2022.
And when you look at that combined company growth, what we see as overall block gross profit growth of approximately 25% year over year in January and February , which we expect to be relatively consistent for the full quarter as well and which is an improvement from what we saw in Q4 of 21% year over year growth on a combined.
<unk> company basis within each of those cash App, we expect to grow at more than 50% on an as reported basis in January and February .
In March we expect to see a slower growth rate as we lap the pricing changes really the drivers of cash outflows or continued strength in active inflows proactive and monetization rate.
From a square perspective, we expect to see gross profit growth of 15% on an as reported basis in January and February I think it's important to unpack the numbers further on square here to see what's going on in the core square ecosystem ex the NPL and ex PPP.
And just as a reminder, in Q3 square ex PPP NXP NPL grew 19% year over year, we saw some softening in discretionary verticals in Q4, and so that same rate of growth for the same square ex PPP in XD NPL was 17% in Q4 and.
And now we're seeing growth for square ex PPP X D. N P. L in January and February of 21%.
So those are some of the puts and takes that we see across the square ecosystem. So far this year.
And then in terms of the ecosystem integrations. The number one we're focused on obviously as.
After paying this is.
The connection between square in ketchup.
We we're still early in the product integration, but the place to look is there's obviously going to be in ketchup.
In the discover tab in marketplace.
We believe that.
We started we're pretty early and just what this area will do.
Right now it looks like a fairly simple search and I think that <unk> is a little bit little bit off, but we're going to continue to iterate as quickly as possible to make sure that we re meatier opportunity which is.
Which is a pretty massive for us.
We do.
We see a lot of opportunity not just there, but what were you mentioned with the with cash I pay.
We are starting more with some after pay merchants.
So customers can browse and finance and discount offers merchants who accept ketchup.
And then we'll continue to move more and more towards the square ecosystem.
Your system.
But I would say that the integration.
The acquisition and putting the companies together, we're in a much better position now we're really focused on the product and how these two things that come together.
There's a lot more integrations to come between other ecosystems, namely TBD and a bunch of what we're trying to do with with ketchup.
Globally.
And then also title as well for artists and musicians and making sure that they have what they need to.
To continue to build up their careers in the same way that we've served sellers as well.
Ladies and gentlemen, thank you for participating in today's program. This does conclude the program you may all disconnect.
Okay.
Uh huh.
Yes.
James was with your phone.
<unk> global hard into that one national brands with the window grant money.
Okay.
It is itself Glenn.
Good morning, David.
From a dog that's locked into the.
The break with money.
Yes.
Come on.
Thank you Scott.
Second when you pivot.
No.