Q3 2024 Block Inc Earnings Call
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Speaker Change: Good day, ladies and gentlemen, and welcome to the Block Third Quarter 2024 Earnings Conference Call. Today's call will be 45 minutes. I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead.
Speaker Change: Hi, everyone. Thanks for joining our third quarter 2024 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 conference call participants.
Speaker Change: 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.
Speaker Change: These forward-looking statements include discussions of our outlook, strategy, and guidance, as well as our long-term targets and goals.
Speaker Change: These statements are subject to risks and uncertainties. Actual results could differ materially from those contemplated by our four looking statements. Reported results should not be considered an indication of future performance.
Speaker Change: Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ.
Speaker Change: Also 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 statement, except as required by law. Further, discussion during this call of our lending and banking products, including those offered through our bank partners.
Speaker Change: Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40, we are evaluating the sum of our gross profit growth and adjusted operating income margin.
Speaker Change: Also, we will discuss certain non-GAAP financial measures during this call.
Speaker Change: Reconciliations to the most directly comparable GAAP financial measures are provided in the Shareholder Letter and our Historical Financial Information Spreadsheet on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.
Speaker Change: 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's opening remarks will be available on our website shortly. With that, I would like to turn it over to Jack.
Jack: Thank you all for joining us. My shareholder letter this quarter explains our ecosystem of lending products, our methodology, how we address risks, and our competitive advantage.
Jack: We are focused on increasing access with Square Loans, Afterpay, Buy Now, Pay Later, and Cash at Borrow through better technology, transparency, and simplicity. If you haven't yet, please read the letter for more details. And with that, I'll turn it over to Amrita for some highlights from the quarter.
Amrita: Thanks, Jack. We delivered strong results across the company during the third quarter.
Amrita: Gross profit was $2.25 billion, up 19% year-over-year, with 16% growth for Square and 21% growth for Cash App. We delivered a significant increase in profitability on a year-over-year basis with meaningful margin improvement and our highest quarterly profitability ever for both Adjusted Operating Income and Adjusted EBITDA on a dollar and margin basis.
Amrita: For the 12 months ending in September, adjusted free cash flow was $1.5 billion, compared to $945 million in the prior 12 months.
Amrita: For full year 2024, we have raised our guide on Adjusted Operating Income and Adjusted EBITDA, and we have maintained the gross profit guidance we outlined in August.
Amrita: For the fourth quarter of 2024, we expect gross profit of $2.31 billion, or 14% growth year-over-year. Let's unpack a few real-time dynamics.
Amrita: For Square, we've seen an improvement in underlying GPV trends in recent months. In October, we saw higher year-over-year growth for both U.S. and global GPV compared to the third quarter, with global GPV showing double-digit growth.
Amrita: For Cash App, we've seen strong momentum on gross profit and improved attach rates on paycheck deposits.
Amrita: Looking at our fourth quarter guidance, while underlying trends in the business are stable to improving, and we expect square GPV growth to improve modestly compared to the third quarter, there are a few discrete items that impact gross profit growth by about three points.
Amrita: In Cash App, we've shifted out the expansion of Cash App Borrow into new customer segments. And in Square, we had a delay in a one-time transaction cost benefit from a partner. We now expect both of these benefits to land in 2025.
Amrita: Finally, while we are still in the planning process for next year, we wanted to provide a preliminary view into our expectations for 2025 as.
Amrita: As we've shared previously we plan to reach rule of 40 in 2026 with a composition of at least mid teens gross profit growth in the mid 20% adjusted operating income margin.
Amrita: We expect strong gross profit growth in 2025 of at least 15% consistent with our target driven by broad momentum across block.
Amrita: We have a number of initiatives recently launched or are launching soon and we expect them to compound through the year driving stronger growth in the second half of the year compared to the first half we expect <unk> growth to improve next year and to end 2025 at a meaningfully higher growth rate than where we exit 2024.
Amrita: On the profitability side, we're committed to expanding margins on an adjusted operating income basis next year, although we expect the pace of expansion to be less than this year as we invest in growth opportunities with attractive returns, particularly around go to market.
Amrita: Our guide assumes a stable macro environment and is based on the momentum we're seeing in our business as.
Amrita: As we execute on our strategy and scale product innovations for our customers in 2025.
Amrita: We've rolled out squares order platform and we're leveraging this to bring new features to sellers like Preauthorization, where.
Amrita: We're currently testing a new and enhanced square for restaurants point of sale experience with a growing number of sellers and we will make this available to all sellers in 2025.
Amrita: We're also rolling out our single App experience to new sellers now and expect to launch that more broadly in 2025.
Amrita: We've seen tangible momentum in partnerships and early signs of success in sales, we grew our square brand and performance marketing investments more than 20% year over year in the third quarter and began ramping sales hiring including field sales.
Amrita: We'll be scaling these and other go to market efforts more meaningfully into next year.
Amrita: For cash App, we're about to transform $24 million cash up cards into a better alternative to credit cards. When we launched after pay on cash card.
Amrita: We're leaning into go to market spend to drive paycheck deposit actives in 2025 across performance marketing brand awareness and incentives.
Amrita: We've driven performance in 2024 by focusing our strategies and by operating with expense discipline across personnel structural costs and corporate overhead costs.
Amrita: We have seen constraints breed creativity and drive continuous improvement in how we serve customers.
Amrita: We intend to build upon our execution in 2025 and beyond.
Speaker Change: With that I'll now turn it back to the operator to start the Q&A portion of the call.
Speaker Change: Thank you.
Speaker Change: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question simply press Star one a second time.
Speaker Change: If you were called upon to ask your question in early listening via Speakerphone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question can.
Speaker Change: Would you be able to take as many questions as possible. We ask that you. Please limit yourself to one question.
Speaker Change: Again, it is star one if you would like to join the queue.
Speaker Change: And your first question comes from the line of Tien Tsin Huang with Jpmorgan. Your line is open.
Speaker Change: Hi, Thanks, Yeah, I wanted to ask on the square side, if you don't mind really.
Speaker Change: Encouraged here to to hear that you're expecting growth to accelerate on the G. P V front in the U S. Next year could you please give us a little bit more.
Speaker Change: On visibility there and the building blocks that are needed to get to that.
Tien Tsin: Hey, Tien tsin. Thanks, so much for the question I'll start on what we're seeing from a G. P V perspective, and what leads us to the confidence to say that we expect to see modestly improved growth in the fourth quarter relative to the third quarter and further acceleration and growth.
Tien Tsin: <unk> from current levels into 2025.
Tien Tsin: So what we saw first of all just to start in the third quarter was growth at seven 5% which is.
Tien Tsin: Modest a moderation of the seven 8% growth we saw in the second quarter with the U S about four 9% and obviously there we saw some modest impact from weather and Hurricanes at the end of September while international growth was strong in the third quarter at 20%.
Tien Tsin: Now since then what we've seen has been an improvement when we look at square G. P. D. Adjusting for differences in day of the week compared to prior periods. We have seen an improvement in year over year square USG PV growth each month since July.
Tien Tsin: And through October in the U S. We've seen year over year growth improve by a couple percentage points compared to that four 9% growth in Q3, and we are already seeing strong growth in international markets also accelerate into October.
Tien Tsin: We believe this improvement in the U S has been driven by same store growth across our verticals. We're also seeing encouraging trends on customer acquisition, though we know that it's early and we have a lot of room for improvement, which we expect to see as our product innovations and go to market initiatives.
Tien Tsin: <unk> into 2025.
Speaker Change: All right great. Thank you.
Speaker Change: I'll just I'll just add one thing.
Speaker Change: As you as you.
Speaker Change: As you know like we completed our orders my question and this was the biggest unlock for us to really go after all the all the table Stakes features that have been holding us back with respect to our.
Speaker Change: With respect to our biggest competitors.
Speaker Change: So excited about that.
Speaker Change: Came in on time and that means we can move much faster to build out. These features and then build on new features.
Speaker Change: And they are doing new products, but the area.
Speaker Change: I would point to for 2025, I believe is going to be the most interesting.
Speaker Change: It was around cash up local.
Speaker Change: We're one of the few companies that have both sides of the counter.
Speaker Change: And we have this no unique ability to drive them.
Speaker Change: Store traffic and drive orders and drive sales to our merchants.
Speaker Change: In a compelling way on the on the cash App platform itself.
Speaker Change: And the experience we have been testing is.
That's pretty great because it allows for people to walk into a store and discover this.
Speaker Change: But also overtime discover it from cash App itself.
Speaker Change: Which really amounts to sort.
Speaker Change: Sort of.
Speaker Change: Our network for the the neighborhood, where we can we can actually drive new traffic.
Speaker Change: To these merchants, we can allow merchant merchants to capitalize and build loyalty with our customers they already have through cassia.
Speaker Change: And do things.
Speaker Change: Others haven't been able to do which is.
Speaker Change: Things like realtime Cashback, which is a tool for a merchant that they're just not had access to in the past.
Speaker Change: And we think it will be.
Speaker Change: Great network effect.
Speaker Change: <unk> future.
Speaker Change: That provides a new foundation, both for cash up and also for per square foot on the square side like everything that were looking at after this migration.
Speaker Change: Making sure that we get to the table Stakes and we unblock ourselves from competitors and then get back to building new features.
Speaker Change: And really focus on the in store experience and how people think about omnichannel and spanning multiple.
Speaker Change: All verticals at once which was one of the reasons.
Speaker Change: The two square in the first place.
Speaker Change: And your next question comes from the line of Tim Chiodo with UBS. Your line is open.
Speaker Change: Great. Thank you for taking the question somewhat aligned with Jack what you were just talking about finishing the orders migration and then you mentioned this in your prepared remarks, but we noticed on the job posting site that you did begin hiring some of the local in market sales folks. So we noticed specifically that the job description stated that these people will be selling.
80% of the time face to face so very much local in market salespeople and while the job postings number didn't seem overly large we gather this is more of a sort of the initial team. So wanted to see if you could talk a little bit about one that initial team and then to the plans for expansion and then of course, just more broadly across the hybrid approach.
Speaker Change: Theres lots of distribution partnerships announced in the shareholder letter you even mentioned and ISO.
Speaker Change: The U S. So would appreciate any of that context. Thank you.
Speaker Change: Hey, Tim Thanks for the question that I can get get US started here on our broader sort of sales strategy for square, which we're pretty encouraged about it really obviously two key pieces of this one is how we drive acquisition of new sellers and volumes from new sellers and then the second is how we drive long lifetime value and <unk>.
Speaker Change: Retention from our existing sellers and we see opportunities on both sides.
Speaker Change: With respect to new sellers, obviously ramping our field sales hiring is a key piece of that as you know also driving productivity. We're at with our existing sales team as it is a big opportunity for US one that we've made some traction on but we see that we have even more opportunity on with respect to field sales hiring we do have our first group of.
Dedicated field sales reps in market now and we plan to continue hiring here in the fourth quarter and enter into next year, we think that by putting resources by putting people on the ground in local markets that that helps not only support our brand perception, but also some of this partnership and broader marketing motion that all.
Speaker Change: Come back to in a moment on the productivity point for our existing sales team, we've seen about a 10% to 20% improvement in per rep productivity year to date, and we believe we can increase that even further and we think that this team is generating hundreds of millions of dollars in lifetime value per annual cohort with healthy payback periods.
Speaker Change: And with even more opportunity as we lean into marketing and partnerships to drive more efficiently generation as we see these product investments that we're making enable us to serve more upmarket sellers and drive larger deal sizes.
Speaker Change: And then from a sales enablement standpoint, with greater tooling and incentives things like contracts that have really driven higher attention for us.
Speaker Change: With newer sellers from an existing seller standpoint. This is a really key piece as well because our account management team has done a really good job in driving enhanced lifetime values, we're investing here as well to drive retention and cross sell across these cohorts, we've seen at cohorts of sellers that come through our account management team have a.
Speaker Change: 40% increases in net promoter score so that gives us the confidence to invest more and that's on the back of as you know much broader strategy that involves marketing and partnerships. We just obviously announced in our shareholder letter today that we've got partnerships with T mobile in the U S as well as Salon centric and we are.
Speaker Change: Got a much more diversified strategy and how we go to market across these partners. When you look at our international markets as well, where we see a tremendous opportunity.
Speaker Change: To innovate and to test different different ways of going to market.
Speaker Change: Thank you Amrita.
Speaker Change: And your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.
Speaker Change: Thanks, guys, but just given the backdrop of all the regulation going on around Fintech banks in particular in the industry. Maybe you could just touch on how it may or may not be impacting you guys, what youre doing around <unk>.
Speaker Change: Implants, and addressing capacity around the banking infrastructure and then I guess, it's really good to see the outlook for 'twenty five at that 15% gross profit level, maybe it seems like this whatever it is friction wise is it impacting your ability to grow so help us understand if that if there is any implications and maybe even on a sub segment level.
Speaker Change: Do you see cash app's sustaining strong growth into twenty-five too. Thanks.
Speaker Change: Thanks, guys.
Speaker Change: I'll just start by saying.
Speaker Change: I mean, obviously.
Speaker Change: There was just an election.
Speaker Change: Of.
Speaker Change: Have no idea, what's going to happen with a broader regulatory so we're focused on what we can control and making sure.
Speaker Change: We continue to build stronger systems.
Speaker Change: So horizon evolves.
Speaker Change: As a as more and more people come onto the financial network.
Speaker Change: We're thinking about this by applying better technology and a big reason, we functionalize the company and really focus on engineering.
Speaker Change: As we see opportunity to really leverage technology, a lot more in our approach.
Speaker Change: And make sure that we're way ahead of the regulatory assets and everything happening with compliance and risk.
Speaker Change: This is something that we've made a strong discipline from from day, one of the company and so the only reason we exist as a company is because of this focus.
Speaker Change: And I think that will only increase and then we just have to see what the variables are.
Speaker Change: It goes on.
Speaker Change: And.
Speaker Change: How how we react to it but I think the most important thing is to really focus on the control, what we control and make sure that we're.
Speaker Change: Doing all the right things by building better technology, and leading with technology.
Speaker Change: Instead of just purely.
Speaker Change: Human based approach.
Speaker Change: Now add to that Darrin to to just say you know with that backdrop of an evolving regulatory environment, we feel well positioned we've got significant scale, we've got strength in diversity and our partnerships and we have the ability as Jack noted to truly innovate and invest in our compliance programs and broader technology machine.
Speaker Change: Learning programs that support all of these efforts. We also longer term if you think about the banking as a service model.
Speaker Change: Have a great optionality with our internal bank with a square financial services.
Speaker Change: We have strong partners across the full stack of our payment products.
Speaker Change: Baking products and out one of the things as Jack noted that we looked at control is how we build redundancy across our business and this year. We've on boarded a number of new partners as we are building reserves.
Speaker Change: Resilience and redundancy across key parts of our platform.
Speaker Change: So I think that's a that's a key piece of how we focus on and in an evolving regulatory environment I want to come back to your other question about 2025, and our preliminary guidance. There. So first what I would say, obviously, we're committed to achieving rule of 40 in 2026 and and sustaining it beyond that.
Speaker Change: And as I noted, we expect to see that as a mix of at least mid teens gross profit growth mid 20% adjusted Oi margin. So our preliminary guidance for 2025 of at least 15% gross profit growth is consistent.
Speaker Change: With that longer term gross profit expectation. We're also committed to expanding our margins next year and a lot of this comes down to the efforts that we're making across.
Speaker Change: Heard so far on the call across go to market and product philosophy from both a square in cash out perspective, and the drumbeat of build for that throughout the year and as a result of that we'd expect to see each of those innovations and improvements compound and benefit growth as we progressed through 2025 with more of the improvement coming in the second half.
Speaker Change: 2025.
Speaker Change: Great. Thanks, guys.
Speaker Change: And your next question comes from the line of Ramsey El <unk> with Barclays. Your line is open.
Speaker Change: Hi, Jack and Amrita, Thanks for taking my questions. This evening.
Speaker Change: And really you mentioned some timing related impacts to Q4 gross profit.
Speaker Change: Can you give us a little more color on what those items are and also any thoughts about when they might flow in a more precisely next year.
Speaker Change: Sure happy to take that Ramsey.
Speaker Change: First on the specific items that shifted out of 20 of Q4, and we now expect to materialize in 2025, there's really kind of two key pieces to it first on the square side Theres. Some partner benefits that we had expected to land in Q4 that would benefit our transaction costs and we now expect them.
Speaker Change: To land during 2025.
Speaker Change: From a cash up.
Speaker Change: Perspective, secondly, we shifted the expansion of cash that borrow to new customer segments into 2025, One example, and just sort of expansion.
Speaker Change: Talking about is that we're planning to use borrow as an incentive to drive paycheck deposit adoption.
Which will now expect to scale during the year next year, we're super excited about the potential here.
Speaker Change: We started some early testing on it we've also delayed some expansion around underwriting criteria.
Speaker Change: As you saw in Jack's letter lending has tremendous value to the broader ecosystem by driving engagement and retention and product adoption.
Speaker Change: So we're excited about the opportunities with borrow.
Speaker Change: Some of which we had previously expected to materialize in Q4, but now we expect to see from a timing perspective in 2025.
Speaker Change: To level up.
Speaker Change: Briefly on the overall Q4 guide.
Speaker Change: We're raising the bottom line guidance.
Speaker Change: And that's even as we expect to continue ramping our go to market spend to drive growth into 2025.
Speaker Change: And we see underlying sort.
Speaker Change: Sort of healthy trends and momentum across each of the ecosystem is based on what we're seeing so far in October with square strong signals as noted earlier in GTA V growth.
Speaker Change: Cash app healthy year over year growth and inflows proactive through October, which we expect to continue through Q4 and encouraging momentum around paycheck direct deposit actives as well and then as you've heard execution across a number of different new product launches, whether it's square preauthorization or enhanced restaurant point of sale was more to.
Speaker Change: Calm things like after pay on the cash App card in our single App within square all of which we expect to grow and support our growth into next year. So some healthy underlying momentum that we're seeing even in early Q4.
Speaker Change: Thanks Andrea.
Speaker Change: And your next question comes from the line of will Nance with Goldman Sachs. Your line is open.
Speaker Change: I appreciate you taking the question today I wanted to ask just on some of the trends and cash App and just how you guys are thinking about balancing the user growth algorithm versus versus the ARPA of expansion.
Speaker Change: Maybe you can kind of talk through some of the trends you saw this quarter I think I may use were relatively stable what sort of the expectation over the next year or so.
Speaker Change: Well I can get us started on this.
Speaker Change: So what we saw from it and they use standpoint was 57 million monthly active relatively consistent with the end of the second quarter up 3% year over year.
Maybe let's just talk about some of the drivers for that and where we are seeing real growth.
Speaker Change: Growth from an engagement perspective.
Speaker Change: So first we think longer term there is a significant opportunity to continue to drive growth with active.
Speaker Change: We've got.
Speaker Change: Room to grow around our digital native audience is millennials and Gen Z customers and real residents there.
Speaker Change: In the near term from a year over year growth perspective, we do expect to see more moderated growth and likely we will end the year as well in that sort of 57 million monthly active range. There's two reasons for this that are part of our deliberate strategy and in our banks our base strategy first is our.
Speaker Change: Focus is around engagement as you've noted with our ARPA trend lines at $75 in the third quarter versus 65 last year, a growth of 16% year over year, we're seeing strong engagement on the platform and we've put emphasis on driving product adoption driving share of wallet and you see that come through.
Speaker Change: Through in products like cash App card or cash that borrow or buy now pay later, where we've seen transactions increase.
Speaker Change: Where we've seen cash up card spend increase on a year over year basis.
Speaker Change: And strong engagement inflows proactive up 9%.
Speaker Change: The second key piece of our strategy is driving enhancements to the platform, where our focus is on promoting a healthy ecosystem as we're working to build a primary banking relationship with customers.
Speaker Change: Building, a healthy and safe platform are critical to that works for both existing customers as well as new and so we made some adjustments around onboarding flow limits and other controls which enable.
Speaker Change: Enable us to create greater access and opportunities for cross selling but to have some tradeoffs in terms of new actives growth. We think those trade offs are worthwhile.
Speaker Change: As we're building the deepening trust and engagement with our customers.
Speaker Change: Great I appreciate you taking the question Tonight.
Speaker Change: And your next question comes from the line of Dan <unk> with Mizuho. Your line is open.
Speaker Change: Hey, guys. Good evening. Thanks for taking my question I wanted to ask like a bigger strategic question Jack like I saw the shareholder letter.
It looks like a lot of nice returns on the lending products can we touch on it a little bit long term as you think about how these.
Speaker Change: Current lending products are enhancing the entire ecosystem as you continue to use scale. Thank you.
Speaker Change: Yes, absolutely.
Speaker Change: This is one of the things that well also.
Speaker Change: Hi.
Speaker Change: Both square.
Speaker Change: It certainly did.
Speaker Change: Square in the early days, when we launched what we call back on square capital.
Speaker Change: Just having an easy option for sellers too.
Speaker Change: Potentially increase their sales by getting.
Speaker Change: Appropriately sized loan right so the email inbox.
Speaker Change: Hum too.
Speaker Change: Opt into it and then paying back.
Speaker Change: Through just making sales to their customers.
Speaker Change: Really took off and it kind of guides, how we think about all of our lending products, we want to lead with technology and that means that we have a deep understanding of our sellers our cash app customers are big customers and merchants.
Speaker Change: And we want to make it very transparent and upfront. So they know exactly what they're going to tell you there's no hidden fees.
Speaker Change: Everything is visible so they know what they are taking part in part of.
Speaker Change: And then and then finally its simplicity.
Speaker Change: Specifically around the payback experience, that's where it really matters because with a simple payback experience it doesn't really feel like alone.
Speaker Change: It feels like something that you can use rate and time to do whatever you need to do whether it be.
Speaker Change: Buy a new salon chair to double yourselves or.
Speaker Change: Just hold the over for the week before your paycheck and the cash up case.
Speaker Change: So.
Speaker Change: This will be a reason.
People stay and that's traditionally.
Speaker Change: One of the big reasons why people do it because they have access to something like this built right into the point of sale.
Speaker Change: Right into their apps.
Speaker Change: They started with peer to peer and have moved onto them.
Speaker Change: Banking and using using the cash upward.
Speaker Change: I think the most exciting thing for us is putting after pay on the cash occurred and then just how that expense.
Speaker Change: <unk> potential.
Speaker Change: Obviously the scale of the customer.
Speaker Change: It is meaningful enough like it really.
Speaker Change: <unk>.
Speaker Change: Changes the game for our customers and obviously our business as well.
Speaker Change: These are great options for investors in these products, but.
We have a lot of flexibility.
Speaker Change: In the future.
Speaker Change: Including us as we think about these products.
Speaker Change: As we move forward.
Speaker Change: But in terms of the ecosystem today.
Speaker Change: We're really focused on retaining through providing totally new utility is extremely useful for that.
Speaker Change: These customer bases.
Speaker Change: And then little by little as people understand the benefits I think it becomes an acquisition channel for US a reason why people want to download cash up and use it.
Speaker Change: A reason why people want to download squares or point of sale.
Speaker Change: And use it for their business, whether that'd be one location or a multiple so it's.
Speaker Change: Banking as a category.
Speaker Change: Huge deferred.
Speaker Change: Differentiator for us.
Speaker Change: That will continue to invest in.
Speaker Change: But it also is a complement.
Speaker Change: Anything else, we need to lead with all the other features that provide other utility in other revenue streams for us.
Speaker Change: We think theres a lot there both on the cost side and also on the square side, especially since we completed our orders migration, we can get back to <unk>.
Speaker Change: Building, new things and new innovations for.
Speaker Change: For our sellers, whether that be software hardware or services.
Speaker Change: And we've looked very deeply across our entire ecosystem for those connection points, which had even more utility.
Speaker Change: And totally new network effects like catch up to sort of merchants.
Speaker Change: Thank you so much.
Speaker Change: And your next question comes from the line of Alex <unk> with Keybanc.
Speaker Change: Your line is open.
Speaker Change: Yeah.
Speaker Change: Hey, everyone. Thanks for taking my question earlier in their yard indicated marketing around cash App incentives will start in the back half just sort of curious to what extent. This has started in some of the early learnings so far considering the bank debase efforts and then maybe just bring it all together for us with your earlier comments around activity levels that you have.
Speaker Change: We're seeing them on the active space more recently thanks.
Speaker Change: I'm happy to get US started here I think what we're seeing from our bank. The base strategy is is really sort of coming together first from a product perspective, we believe the suite of tools financial tools that we've built is compelling.
Speaker Change: Relative to what's out there.
Speaker Change: With traditional banks and we're intending to increase our investment behind go to market to bring awareness around that.
Speaker Change: Maybe just unpack kind of what's going on in here, we've got benefits that helped drive paycheck direct deposit acquisition and improve retention and number of which are you know a numerator and a shareholder letter in which we've been building upon throughout the year.
Speaker Change: And continue to build upon you know, we recently rolled out free paper money deposits at a new benefit and as I mentioned earlier, we're testing access to borrow as a way to drive.
Speaker Change: Correct.
Speaker Change: Direct deposit pay check direct deposit active encouraging signs still early we're also bringing greater visibility to these benefits in the App. We started rolling out a new in App experience, a new version of our money tab within cash App in October that makes our direct deposit offering and the and all these sort of related benefits weigh more visible.
Speaker Change: We're only obviously a few weeks into this but we are seeing high engagement and uplift in customers setting up direct deposit through that.
Speaker Change: And cash a card is I think another key piece of bringing visibility to our broader set of banking offerings and ultimately direct deposit obviously as you've heard we have a lot of excitement about bringing after pay to the cash card and we see that as an opportunity to drive engagement and ultimately attached to our banking products and direct deposit.
Speaker Change: Specifically within go to market.
Speaker Change: Our focus is on scaling several channels, including performance marketing incentives referrals and brand marketing and Youll see us do that in the fourth quarter included in our guide is a step up in marketing related to that and into 2025.
Speaker Change: With the intent of of ultimately building trust and awareness around all of these financial services products.
Speaker Change: So we're pretty excited about what we're seeing as you noted earlier.
Speaker Change: <unk> engagement.
Speaker Change: Even so far without driving a step up in marketing, but with now bringing it all together from an awareness standpoint, we're excited to see what lays ahead.
Speaker Change: Thanks.
Speaker Change: And your next question comes from the line of Jeff Cantwell with Seaport Research. Your line is open.
Speaker Change: Hey, Thank you very much.
Speaker Change: <unk> for your company.
Speaker Change: For example, bitcoin for many years, all pivot a little bit away from square and cash up and ask about that because at the moment and increasingly sounding like there's potential opportunity for greater regulatory clarity on crypto and the U S.
Speaker Change: Well first of all do you agree with that statement and can you maybe talk a little bit about blocks <unk> strategy and how you might capitalize on that development.
Speaker Change: Also can you remind us how much BDC you have on the balance sheet and talk about whether you might be adding to that of the future and then lastly, I'll ask all lined up front can you just give us your thoughts on what greater regulatory clarity might mean for crypto in general does that kind of open up the possibility for more acceptance and usage here in the U S and globally.
Speaker Change: Yes.
Speaker Change: I think greater clarity.
Speaker Change: We'll definitely be extremely helpful.
Speaker Change: Because it allows us to move much faster because we know well.
Speaker Change: What the rules are and what the common understanding us.
Speaker Change: Especially in the U S. So I think this is generally positive.
Speaker Change: Positive for the for the industry.
Speaker Change: We're only focused on Bitcoin then we're only focused on bitcoin because we won the internet.
Speaker Change: Currency and the reason we want that is because we want to accelerate our business.
Speaker Change: We have a native currency for the Internet means we can move.
Speaker Change: Money much faster and we can offer cash out products and square products in every single market.
Speaker Change: Instead of the market by market of course that we have to we have to do today. So what we're focused on in terms of our strategy overall on decline is making it more accessible making.
Speaker Change: Making sure that more people can access the coin by solid obviously, but also.
Speaker Change: Sunday peer to peer.
Speaker Change: We want to make it more secure are manifestation of this is around Vicky.
Speaker Change: And making sure that we help in every way possible to better secure the network mining and our mining initiative is a big part of this.
Speaker Change: And ultimately we want to make it usable over every day. This is a longer term strategy. This is where we get intellectual payments.
Speaker Change: And having an open protocol for payments on the Internet.
Speaker Change: Which it needs and it's going to happen.
Speaker Change: At some point, it's just a matter of time and.
Speaker Change: <unk> has the strongest adoption.
Speaker Change: That has the strongest belief system that has all the attributes necessary tetra.
Speaker Change: <unk> is a currency, including having.
Speaker Change: Having no.
Speaker Change: No security issues never being down.
Speaker Change: The significant developer community behind it the.
Speaker Change: It makes us stronger and more secure and faster every day.
Speaker Change:
Speaker Change: There are two areas I pointed to in terms of manifestation of bitcoin it would probably be the cash up exchange number one.
Because it's the starting point for for people participating in the future.
Speaker Change: Future currency.
And then second is mining.
Speaker Change: Mining is we think going to be pretty large for us.
Speaker Change: Because we've been developing a <unk> for quite some time there is a specialized version of the <unk>.
Speaker Change: Competitors suddenly one main competitor here and a lot of the.
Speaker Change: A lot of mining folks just.
Speaker Change: One another option.
Speaker Change: Believe it at that but they want another option.
Speaker Change: That is reliable.
Speaker Change: Configurable.
Speaker Change: That they can customize to their needs and whether that be buying the chip or the hush board or even an entire system.
Speaker Change: Other options out there.
Speaker Change: Is significant and you probably saw our announcement of one of those deals.
Speaker Change: There are more to come because there's a huge gap in the market in terms of quality of these machines and also focus on it and we have a team.
Speaker Change: Can do both Fortunately so.
Speaker Change: We will continue to look at the space and continue to.
Speaker Change: To work on products and features that help across those three things accessibility, making them more secure and making it more more usable everyday.
Speaker Change: Yeah.
Speaker Change: And Jeff just on your question.
Speaker Change: About the clean on the balance sheet, we have just over 8300 bitcoin on the balance sheet, which as of the end of the quarter was worth $530 million and obviously it couldn't current trading values is worth about $100 million more than that.
Speaker Change: Great. Thanks for all that I appreciate it.
Speaker Change: Okay.
Speaker Change: And as a reminder, we ask that you. Please limit yourself to one question and your next question comes from the line of harsh <unk> Rawat with Bernstein. Your line is open.
Speaker Change: Hi, Good afternoon, I wanted to ask about Opex.
harsh Rawat: This year you exceeded your objective here and also came in below consensus the constraints you're pleased with it.
harsh Rawat: How do you think about further efficiency gains here.
Speaker Change: From kind of streamlining resources, which should be doing and how does that balance against some of your go to market in Boston Sinclair and ultra marketing spend with gotcha. Thank you.
Sure Hershey that I, what I would say is that we still see significant opportunity across building leverage and in multiple areas of our operating expense base, maybe three key areas to call out.
Speaker Change: So that we can make room for our go to market initiatives, where we are seeing high returns in which we do expect to accrete in terms of long term profitable growth, but those three key areas being.
Speaker Change: Personnel expenses structure.
Speaker Change: Structural costs and corporate overhead from a personnel perspective, we've got people cap in place, we believe that that sort of a constraint.
Speaker Change: Affords us.
Speaker Change: Creativity around and prioritization around how we focus our efforts against our strategies against delivering value to customers and with 19% growth this quarter, a 15% growth.
Speaker Change: At least 15% growth next year.
Speaker Change: You see a tremendous amount of leverage on that fixed expense base as we remain under our people tap.
Speaker Change: Secondly from a structural cost perspective.
Speaker Change: We see.
Speaker Change: Further opportunities around unit costs, when we look at.
Speaker Change: How we operate our products whether in partnership with others or as we as we run our machine learning models from an underwriting and risk loss perspective, and then third corporate overhead. It's a multiyear effort to examine each of our sort of key pieces around corporate overhead from TNT to professional services to cloud to software.
Speaker Change: Sure.
Speaker Change: To travel and entertainment and we think that there is more opportunity for us to ensure that we can put as many of our investment dollars towards our customers as possible and we also as noted in the shareholder letter may.
Speaker Change: Make decisions against our own progress and hold ourselves accountable to a high bar and as it related to that have made some recent.
Speaker Change: Decisions with respect to some of our emerging initiatives, where we are reducing our team size on title and winding down our TBD efforts.
Speaker Change: But in an effort to be able to put more investment against the areas that are working that have found product market fit like our bitcoin mining initiative as you heard from Jack.
Speaker Change: We have a healthy pipeline of demand.
Speaker Change: Or things like ourself custody wallet for Bitcoin, Vicki, which was recently named to you know one of the best inventions of 2024 by time.
So we are continuously evaluating ourselves our performance and holding ourselves to a high bar and I think that's how we expect to drive further margin improvement next year.
Speaker Change: Okay.
And your next question comes from the line of Andrew <unk> with Wells Fargo. Your line is open.
Speaker Change: Hey, Thank you for taking the question I know, it's been asked before but just wanted to hone in on <unk> again.
Speaker Change: You said that growth was double digit in October, but we're only expecting kind of a modest improvement in fourth quarter versus third quarter. So maybe you can kind of just help us understand why only modest instead of something more robust.
Speaker Change: Yeah, well look well, we'll still we're still in the early days of November. So we'll know more obviously isn't get through November and December November and December typically are months that are more impacted by holiday and seasonal spending, which we don't yet have a view on.
Speaker Change: And maybe more discretionary vertical as it related to that so obviously update you as we know more but what we did see in October is as I noted a couple of percentage points of improvement in the U S off that four 9% year over year growth in Q3.
Speaker Change: And also improvement even on the international growth, which was obviously already strong at 20% year over year in the third quarter.
Speaker Change: We think that there's even more opportunity as we look to 2025 and our own execution in terms of customer acquisition in terms of all these product initiatives coming to bear.
Speaker Change: Great. Thank you Andrea.
Speaker Change: Okay.
Speaker Change: And your next question comes from the line of Trevor Williams with Jefferies. Your line is open.
Speaker Change: Great. Thanks, a lot.
Speaker Change: If we go back to after pay on cash card, if you're able to share anything more specific in terms of timing for a broader rollout and then any early learnings just from the more limited launch that you've done to date around how it's complementing the existing debit spend on cash card anything just in terms of what kind of uplift you are seeing thanks very much.
Speaker Change: Yes.
Speaker Change: Nothing nothing specific on the day, we want to make sure that we get the whole experience.
Speaker Change: Correct.
Speaker Change: But the results have been very very encouraging from our from our customers and.
Speaker Change: We see this as a meaningful opportunity for us that we're going to roll out and scale.
Speaker Change: Over the over the over the next short time.
Speaker Change: But.
Speaker Change: The scale of the cash Upcard.
Speaker Change: Functionality.
Speaker Change: Buy now pay later and.
Speaker Change: Making sure that people can easily access and not have to think too much about it using the cash upfront.
Speaker Change: Going back to what I said about our lending ecosystem with the the focus here is on technology to make sure that like.
Speaker Change: We are able to offer this to as many people as possible the transparency that they will be able to see.
Speaker Change: Just it more because of that and then also the simplicity.
Speaker Change: And specifically where the simplicity matters is is around is around the payback. So we're really excited about it.
Speaker Change: And can't wait to continue to roll it out.
Speaker Change: And Trevor I would just add.
Speaker Change: Similar to what you've seen us too with our other lending products and more recently with the cash that borrow is that we're going to be pretty careful and methodical in terms of how we ramp the product as you heard from Jack We're Super excited here, but we.
Speaker Change: We want to make sure that we're ramping iterating learning as we test what we would expect to see is initially.
Speaker Change: Millions of monthly actives.
Speaker Change: Of our cash up card monthly actives should be eligible next year, obviously, a subset of them will actually convert to using the product and then over time, we expect to grow both eligibility and do things to try to drive conversion higher conversion over time as well, we're going to start first with the retro.
Speaker Change: Active offer.
Speaker Change: On which is that you can effectively after he is making a purchase retroactively are paying for and then we'll expand to allow customers to turn on after pay before they make a purchase so we're being deliberate both in terms of the use cases that we roll out the number of customers that we make eligible.
Speaker Change: Then looking to see how that conversion plays out over time with an eye towards ramping eligibility and conversion as we go throughout time.
Speaker Change: And we will now take our final question from the line of Andrew Jeffrey with William Blair. Your line is open.
Andrew Jeffrey: Hi, I appreciate you sneaking me in here at the end.
Andrew Jeffrey: I wanted to ask about cash App monetization.
Speaker Change: And kind of how we think about progressing I think first of all just kind of what the composition of that looks like today.
Speaker Change: Between the different.
Speaker Change: Drivers interchange in particular, and whether interchange becomes a greater contributor with direct deposit I imagine well, but I'm just trying to dimensionalize that and think about trends in monetization.
Speaker Change: Sure you know what what I would say is that we see health.
Speaker Change: Across in a healthy trends across a number of different products for cash app.
Speaker Change: When we look at whats driving the strong performance you know gross profit up 21% year over year in the third quarter.
Speaker Change: Inflows up 13% year over year monetization rate Act is all growing as well.
Speaker Change: What we see is cash.
Speaker Change: Cash upcard borrow or buy now pay later platform cash that pay each of these products driving meaningful growth cash up card is.
Speaker Change: Our largest gross profit revenue stream, our primary driver of growth with both actives and spend per active growing on a year over year basis. It's now become a daily utility for our monthly active we're seeing an average of six times transactions in terms of transactions per week.
Speaker Change: And were doing Theres more that we can do here drive putting more marketing dollars behind driving cash of cardiac because this is really an entry point as I was noting earlier for our customers and how they look at our broader suite of financial services products.
Speaker Change: Borrow also with strong momentum gross profit growth up more than two times year over year in the third quarter and buy now pay later inclusive of our ads burgeoning ads revenue stream on that platform with 29% gross profit growth in the third quarter or 23% GMB growth both of those rates stronger than we're.
Speaker Change: We were.
Speaker Change: In the prior quarter, so an improvement in growth and then with cash that pay you know we've seen tremendous momentum here cash that pay monthly actives have actually now surpassed after pace North American active and we're adding more and more partnerships new enterprise merchants, we recently launched announced our partnership with Lyft.
Speaker Change: It has more than 23 million active riders in North America.
Speaker Change: And seeing rapid again adoption with minimal marketing spend behind it and we will be leaning in to marketing. We just started some in the third quarter to activate some marketing campaigns and drive awareness of cash out of PE. So again, I think we see multiple levers for continued growth and ramping of <unk>.
Speaker Change: Our existing products and then with new products to come like after pay on cash App card, we see further opportunity around driving engagement monetization rate into the future.
Speaker Change: Thank you.
Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Speaker Change: Hmm.
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Hmm.
Speaker Change: Tim.
Speaker Change: Lynn.
Speaker Change: Jesse.
Speaker Change: Hum.
Speaker Change: Yes.