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spk07: Good day, ladies and gentlemen, and welcome to the block first quarter 2022 earnings conference call. I would now like to turn the call over to your host, Nikhil Dixit, head of investor relations. Please go ahead, sir.
spk11: Hi, everyone. Thanks for joining our first 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. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will provide preliminary gross profit growth results for the month of April. These represent our current estimate for April performance as we have not yet closed our accounting financials for the month of April and our monthly results are not subject to interim review by our auditors. As a result, actual April results may differ from these estimates. 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 of 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 will be available on our website shortly. And with that, I would like to turn it over to Jack.
spk12: Thank you all for joining us. We're looking forward to spending time with you all at our Investor Day on May 18th, where we'll be able to share everything we're doing across block and how it all connects together. I'm going to start with a few highlights across our business from the quarter. Cash App made a lot of progress in four areas this quarter. Cash App for Families, Trust, Afterpay, and Bitcoin. We continue to make it easier for customers to bring their families into the Cash App ecosystem with simple and safe controls. Introducing FDIC insurance in April on all accounts with the Cash App card builds trust and encourages people to maintain a balance and fulfills a long-standing customer request. And we're just getting started integrating Afterpay into Cash App. where we've already seen Cash App Active drive more than 35,000 leads to after-pay sellers during the first quarter. We continue to make Bitcoin more accessible through Cash App. More than 10 million accounts have bought Bitcoin since we've started offering the service. And last month, we announced the ability to send and receive Bitcoin through the Lightning Network. Transactions on the Bitcoin blockchain can take as long as 10 minutes to settle, making it unusable for everyday small transactions. Lightning fixes that, making transactions instant and free through the Cash App. The Cash App team built this functionality using the Lightning development kit built by Spiral, the open source initiative we fund to help build the Bitcoin ecosystem. The team evaluated all of their options available and ultimately chose Spiral's LDK since it reduced years of work into just a few months to get the future to our customers. We also announced that anyone with an active Cash App card can automatically invest a percentage of their paychecks into Bitcoin with no transaction fees. We believe steps like these increase the usability of Bitcoin all towards an open global monetary transmission network the world can trust. For us, we believe it increases the probability and velocity of serving a more global customer base. Turning to our original ecosystem, Square, We continue to build tools and services to help sellers make more sales. In April, we introduced a new Square Stand across all of our markets, updated with modernized hardware, integrated payments with no need for a separate card reader, and a redesigned checkout flow that provides sellers and their customers with a more intuitive and streamlined experience. Since we introduced the first Square Stand in 2009, it's helped sellers large and small run their entire business from a single place. from in-person payments to managing online sales, deliveries, and in-store orders. With the new Square stand, we're offering sellers our most affordable countertop product to date and a commerce experience that has been updated from the ground up to reflect how sellers do business today. Another way we are strengthening the Square ecosystem is with Afterpay's Buy Now, Pay Later service. This quarter, we integrated this feature to help online sellers of all sizes better compete. In the months since introducing Buy Now, Pay Later online, thousands of Square sellers have used and processed sales with Afterpay. This integration grew Afterpay seller base by an additional 10% in the quarter, and as of today, more than 20,000 Square sellers have processed an Afterpay transaction. We plan to make Buy Now, Pay Later available for in-person payments soon as well. As we've talked with you all in the past calls, we believe the connections between our ecosystems like Square and Cash App are what set us apart and makes us so valuable to our customers. Afterpay is a great example of this, and we have many more to come. We'll share more about this at our investor day. With that, here's Emerita.
spk05: Thanks, Jack. There are three topics I'd like to cover today. First, a look at our performance in the first quarter of 2022. Second, an update on our business through April. And third, a look at our investments for the remainder of the year. In the first quarter, our ecosystems delivered impressive growth, with gross profit of $1.3 billion, up 34% year over year. Adjusted E to Dot was $195 million. In February and March, Afterpay contributed $92 million of gross profit. Excluding this, gross profit for the quarter was $1.2 billion, up 25% on a year-over-year basis and 45% on a three-year CAGR basis. Before getting into the results in our ecosystems, I wanted to address how Afterpay will flow through our financial results for Square and Cash App. Given we're integrating Afterpay into both our Square and Cash App ecosystems and expect it to benefit the growth of each, we've decided to allocate 50% of Afterpay revenue and gross profit to each of Square and Cash App. We recognize Afterpay revenue and gross profit in our subscription and services-based revenue line and not in GPV or transaction profit. Cash App generated $624 million of gross profit in the first quarter, an increase of 26% year-over-year and 94% on a three-year CAGR basis. Excluding $46 million of gross profit from Afterpay, Cash App gross profit was $578 million, up 17% year-over-year and 90% on a three-year CAGR basis. Let's talk about some of the drivers. First, we saw our strongest monthly engagement on Cash App in March, as monthly actives transacted 21 times on average across our ecosystem during the month. This has been driven by strong adoption of our banking products, including Cash App Card. Cash App Card was one of our fastest growing monetization streams, with gross profit growth in the first quarter of more than 50% year over year, despite strong growth in the prior year period, and more than 170% growth on a three-year CAGR basis. Second, we saw our highest quarterly inflows ever into Cash App, with growth on both a quarter-over-quarter and year-over-year basis. Inflows per active declined slightly on a year-over-year basis, given significant government disbursements in the prior year period, but increased quarter-over-quarter. Direct deposit has been a growing mix of inflows, and we've seen particular strength from recurring paycheck deposits, which were up more than 2.5 times year-over-year in March. Increased adoption has been a key driver of volumes here. In March, we reached approximately 1.5 million direct deposit monthly actives. And while we've been increasing adoption across our monthly active base, we believe there is still so much opportunity ahead as we bring awareness to our direct deposit capabilities. Square generated $661 million of gross profit, an increase of 41% year-over-year and 30% on a three-year CAGR basis. Excluding afterpay, Square gross profit was $615 million, up 31% year-over-year and 27% on a three-year CAGR basis. A few factors regarding Square's performance. First, we continue to grow upmarket and gain share among mid-market sellers. Gross profit from the mid-market segments was up 47% year-over-year, outpacing total Square gross profit. We've been encouraged by the adoption of our financial services products among mid-market sellers, specifically with Square Savings. In the first quarter, mid-market sellers were twice as likely to fund their Square Savings account soon after opening it compared to the average seller. Our early traction shows that even larger sellers may be underserved by traditional financial institutions, presenting an opportunity for Square to serve this segment with an integrated solution set. Second, strengthening our presence in markets outside the U.S. is a key part of our growth strategy, and in the first quarter, we improved product parity. In Canada, we've launched square loans for sellers to expand access to credit and on-demand delivery, giving sellers an important omnichannel tool via third-party fulfillment options. We also added CRM tools in Ireland to help our sellers retain and engage customers. Including afterpay, gross profit in our markets outside the U.S. represented 12% of Square's gross profit. Next, we wanted to share our recent trends. In April, we expect overall company gross profit growth of approximately 30% on a year-over-year basis, including afterpay. On a three-year CAGR basis, we expect growth to be relatively consistent with the first quarter's 48% three-year CAGR. The three-year CAGR helped normalize for the unusual growth comparisons during the pandemic. For Cash App, in April, we expect gross profit excluding afterpay to grow by more than 15% year-over-year or around 85% on a three-year CAGR basis. In April, Cash App saw healthy year-over-year growth in actives and overall inflows brought into the ecosystem. For Square, in April we expect gross profit excluding afterpay to grow by more than 15% year-over-year and around 25% on a three-year CAGR basis. Square GPV is expected to be up 29% year-over-year in April and on a three-year CAGR basis, up 24%, which is a slight improvement from 22% in the first quarter. As we had expected, Square GPV grew faster than gross profit on a year-over-year basis, driven by two factors. First, we've seen a normalization in transaction-based gross profit margins as the mix of card not present and debit transactions roughly returns to 2019 levels. Second, we are also closer to completing the PPP program with only 7% of loan applications yet to be forgiven. We recognized $51 million of PPP revenue and gross profit in Q1, and we expect to recognize a much smaller amount across the remainder of 2022. With these impacts, we expect to see a delta between Square's gross profit growth and GPV growth on a year-over-year basis through the remainder of 2022, although expect this delta to lessen in the coming quarters. Again, the three-year CAGRs in April with gross profit at 25% growth and GPV at 24% growth were similar to one another and where I would orient you. Turning to Afterpay, in April we expect GMV to be up 15% year-over-year or 70% on a three-year TAGR basis, and we expect revenue and gross profit growth to come in below this, driven by a mixed shift to newer markets. On a gross profit basis, Afterpay's GAAP results are impacted by expenses related to the amortization of intangible assets, which was a $9 million impact to cost of sales in the first quarter, and is expected to be $12 million on a quarterly basis going forward. This is not an operational expense, but rather a GAAP purchase price accounting adjustment for the acquisition. Losses on consumer receivables were 1.17% of GMV during the first quarter, which was consistent with the second half of 2021. We continue to see healthy consumer repayment behavior with 95% of installments paid on time. We're focused on unlocking the combined potential with our integration. In addition to the launch of Buy Now, Pay Later for Square Online sellers, we see a broader opportunity to bring Afterpay to more of our Square ecosystem in the coming quarters. On the Cash App side, we've been focused on bringing the demand generation capabilities of Afterpay to Cash App and are in the early days of building out a broader commerce platform. Our early experiments have sent 350,000 leads to Afterpay merchants, as you heard from Jack. Our teams have been focused on a detailed integration roadmap, which we'll share more about at Investor Day. Turning out of trends for the remainder of the second quarter and full year. As we shared on our last earnings call, we continue to believe Cash App's year-over-year gross profit growth rate, excluding afterpay, will improve in the second half of the year compared to the first half. As comparisons become more favorable, as we introduce new product innovations across our commerce and financial services priorities, and with the benefit from pricing adjustments in certain areas. Also consistent with what we mentioned last quarter for the remainder of 2022, we expect Cash App and Square to sequentially grow gross profit each quarter throughout the year, even excluding afterpay, assuming the macroeconomic environment remains stable. Through April, we have not yet seen a deterioration in overall consumer spending. That said, we're continuing to watch the broader macro environment. Moving to our planned investments for the second quarter and full year 2022. For the second quarter, we expect to increase overall non-GAAP operating expenses by $245 million compared to the first quarter, or $180 million when excluding afterpay. For the full quarter 2022, we expect to increase overall non-GAAP operating expenses by $2.1 billion compared to 2021. This includes afterpay's expected operating expense base of approximately $900 million this year. Excluding afterpay, we expect to grow overall non-DAF operating expenses by 35% year over year, or $1.2 billion, which is similar to the step up from 2020 to 2021. As we shared in February, we expect to deliver greater adjusted EBITDA in the second half of 2022 compared to the first half of the year, given the pacing of our investments during the year. We're excited to talk to you in more depth at our Investor Day on May 18. There's a lot to update you on since our last Investor Day five years ago around our market opportunity, ecosystem, strategy, and business model. We can't wait to share it with you. With that, we'll open it up to your questions.
spk07: Thank you. And at this time, if you wish to ask a question, simply press star 1 on your telephone keypad. To ask a question, please press star 1 on your telephone keypad. And in the interest of time, please delimit your question to one question. Your first question comes from the line of Tianxin Huang from J.P. Morgan. Your line is open. Please go ahead.
spk04: Thanks so much. Great to talk to all of you all today. So I want to ask on after pay here and how it's performing versus before. your expectations, any, any change in how you're investing in the asset, for example, now that you've owned it for a couple of months and I heard the, the consumer is still, you know, pretty stable from what you see, but just curious how Afterpay itself is performing. Thanks.
spk12: Yeah, I'll, um, I'll start off with this. Um, we're, we're really excited about Afterpay and where it goes. Um, we're still extremely early. into this integration. This is the biggest thing our company has ever done. And, you know, obviously it definitely distracts a lot, but we've managed to perform through it. We do see a lot of our competitors taking advantage of the fact that, you know, we had this integration, but by focusing on the fundamentals and the reason we acquired this company in the first place, which is to connect these two ecosystems. What sets us apart from every other company, whether they be focused on sellers, individuals, buy now, pay later, is we have all of it in one ecosystem. They all connect together. And by making those connections, by making those connections much stronger, we see a lot of power and a lot of value created for our customers, both in the seller space and also the individual space. So we have integrated Afterpay on the seller side. We're just starting to integrate on the Cash App side. And that's where I would point you all in the future is to really look at that because that, for us, really represents discovery. I said in my open remarks, I actually misstated. It wasn't 35K. It's 350K leads from Cash App to Afterpay sellers. And we expect that to continue to grow. And we imagine, as time goes on, that Cash App will be one of the best ways to discover products, companies, and businesses globally, but also around you. So everything that we have, both in the seller ecosystem and the Cash App ecosystem, really comes to bear with this integration.
spk05: And I'll fill in a little bit on the near term. Jack spoke to the long-term transformational opportunity that we're going after. What we see in the near term is, yes, it is a competitive market. We are holding our ground. Our focus in the near term is on managing to bring on quality customers into our platform, deliberately managing our loss rates, and driving increased consumer frequency. And we're seeing traction across each of those measures. Afterpay, from a customer perspective, has 144,000 merchants on their platform, which grew strongly year over year, 63% year over year, 68%, sorry, year over year, and over 20 million annual active consumers on the platform, which grew 37% year over year. From a loss rate perspective, we're onboarding these consumers responsibly and maintaining discipline here with a loss rate of 1.17% in the first quarter, consistent with what we had in the second half of last year, and 95% of repayments being made on time. Obviously, as you manage to loss rates, there's some deliberate tradeoffs you're making on growth, but we feel that that's the right thing to do in this environment. And in terms of engaged consumers, we're driving increased consumer frequency, attracting consumers who want to spend more over time and have the ability to spend more over time. So that's what our focus is on the near term as we build towards this longer-term commerce platform together, which we believe will be so transformational.
spk07: Thank you. Your next question comes from the line of Tim Chiodo from Credit Suisse, your line is open. Please go ahead, sir.
spk11: Great. Thanks a lot. Thanks for taking the question. Also on this same, similar theme around Cash App and the broader topic of commerce. So you mentioned this earlier, Jack, but we did notice that you did start integrating some of the afterpay merchants into the Discover tab. And it sounds like you're sending folks over to those afterpay merchant sites. But maybe you could talk about what that shopping experience might evolve to over time in terms of maybe in-app purchasing or how Boost might be a part of that. And as a follow-up, We noticed that in the after pay filings that you mentioned a degree of merchant funding for boost at this point. And maybe you could just give us an update on the portion of merchant funded versus cash outfunded and related just the percentage of overall cash card transactions that are boosted. I believe the last disclosure was around 5% or so. Thanks a lot.
spk12: Yeah, I believe this is the discovery aspect is one of the critical reasons we made this acquisition and why we think it's so strategic for our overall business. It will enable the entire Cash App ecosystem, all of our customers, to discover products, sellers, both online and offline, square sellers, and even merchants within their neighborhood very easily. That lead generation is really important, and we think it's something that can grow fairly massively. It also, as you pointed out, complements what we already have built in with Boost, which is an instant rewards program on the Cash App part. So we think combining all these things, allowing for people for the first time ever in Cash App to explore all these products, all these merchants, and of course, We want to make it as frictionless as possible so you can imagine where that goes in terms of making that commerce very easy, everything eventually able to do right within the app. That would definitely be a goal because that means our sellers make more sales and our cash app customers are happy because they're getting what they want instantly.
spk05: And I'll add, Tim, that the combined pitch into merchants, existing Afterpay sellers as well as potential new ones, on the strength of the consumer platform that we have, the combined consumer scale that we have between Cash App and Afterpay is a really compelling one. Where we're really seeing some strong early interest is around the pitch of buy now, pay later and cash at pay. And that's something, again, that we'll share more about at Investor Day. And then as you called out on boost, we see an opportunity there. We're not actually funding boosts through afterpay sellers today, but we see a meaningful opportunity there. Overall, we are seeing more partner funding through boosts. because we've been able to make the pitch about how consumers learn about a new merchant or increase their frequency at a new merchant because of the Boost platform, which is a very compelling, unique platform as part of Cash App Card. We haven't yet integrated the sales pitch on Afterpay, but that is something that we see as a future strong potential on Boost as well as what we're seeing on Cash App Pay.
spk07: Thank you. Your next question comes from the line of Darren Teller from Wolf Research. Your line is open. Please go ahead.
spk11: Hey, thanks, guys. You know, your cash app gross profit estimate, you know, results, I mean, even excluding after pay, really handily beat our estimates. I mean, hearing some of the metrics you guys threw out around engagement, monthly engagement, I think you said over 20 times per month or the debit card use, clearly is driving a lot of that strength. And I know you're talking about sequential improvement as the year progresses from here. So if we can just dive into that a little bit and understand what's driving that behavior, consumer behavior with your products, what are they most excited about, whether it's cash out taxes or it's other new features that gives you that much confidence in it sustaining. Thanks again, guys.
spk05: Sure. Thanks for the question, Darren. I can lead off here. We have seen strong growth on Cash App, what you saw here in terms of the growth in the first quarter, as well as leading into April with 85% growth on a three-year CAGR basis greater than 15% year-over-year. X after pay continues to be very strong. I think a lot of it comes back to what we've shared around our inflows framework, the three key drivers of monetization within Cash App. First, growing our active base. As of the end of December, we had over 44 million monthly active. We continue to grow that quarter over quarter in Q1 and month over month into April. Second, inflows. We have continued to grow. We had our strongest inflow quarter ever in Q1. And that's on the back of growing product adoption as well as growing engagement, as we noted in our remarks. And as you noted, strongest engagement month in March was 21 transactions during the month on average across our monthly base. And then finally, the third variable around monetization rate. This is effectively how much we charge on the inflows that come into our system. And as you know, we've been able to drive value across the products that we have and been able to flex pricing on some of them even more recently. So that's the broader framework that really moves Cash App where we've seen strong growth and traction even in the midst of a dynamic macro environment and strong health in the base of our customers on Cash App. You also layer on top of that that we have some newer products that are just beginning to ramp, whether it's reaching out to families, whether it's driving inflows through direct deposit, whether it's things like cash out pay or in the longer term, the opportunities to build an integrated commerce platform with after pay. We see significant opportunity here to continue to drive growth through our cash out platform.
spk07: Thank you. Your next question comes from Lisa Ellis from Muffet Nathanson. Your line is open. Please go ahead.
spk01: Thank you. Good afternoon. Thanks for taking my question. I wanted to switch over to the Square business. Looking at that international contribution that's up to 12% of GPD in the quarter. That's up, I think, from 8% a year ago. You commented on some of the product rollouts in Canada and Ireland today. Just taking a step back, can you describe more broadly the international expansion strategy for Square? And, you know, what do you have to do sort of differently? Which countries are you prioritizing, et cetera, just so we can kind of get a sense for how much upside we can anticipate from the international side with Square? Thank you.
spk12: Yep, of course. So global expansion remains our top priority for Square and also for cash out. And with Square, with regard to Square, we have three approaches. Number one, we invest in brand and product awareness to drive a broader understanding of our product capabilities to sellers within each one of the markets. Number two, we focus on reaching product parity across all of our markets. And what this means is that we have all the products that we have in the United States. Ideally, we're launching them everywhere in the markets that we're currently in as well. So that You know, when Square Loans is in one market, it's also in all the markets that we currently exist in. So in Canada, in Q1, we launched Square Loans to better help sellers manage their cash flow. And we also launched on-demand delivery. In Ireland, in Q1, we launched loyalty and Square Marketing. And as I said in my opening remarks in April, we launched our new Square stand to all of our eight markets. And that is exactly what we want to do. When we launch new features and new products, they go to all of our markets. We're also looking at new markets. So this is the third part of our strategy. In January, we expanded into Spain, and we brought Buy Now, Pay Later functionality to square sellers in Australia and the U.S. So invest in the brand and product awareness, focus on making sure that all of our products exist in all of our markets, and then expand in new markets as well. That constitutes our strategy, and we're pushing really hard as it is our top priority.
spk07: Thank you. Your next question comes from Harshita Rawat from Bernstein. Your line is open. Please go ahead.
spk06: Thanks for taking my question. I want to ask about lending. So for traditional financial services, it's typically the gold mine for monetization, but has been a tougher nut to crack than in your banks and fintechs. And I know you've just launched a bottle product for some of the users. You now have the Afterpay product. Can you talk about how important is lending in the context of your long-term ARPU expansion efforts? Thank you.
spk05: I'm happy to start here. You know, I would say that we have always felt that fast access to funds, whether it's a customer's own funds or access to credit, has been a key part of our platform and a key part of what our customers need in good times and in uncertain times. And we've built a lot of data, a lot of heuristics, machine learning around the ability to enable customers for access to those funds in a responsible way. Obviously, we do that today on the Square platform with our Loan Square Loans product, which we were able to very quickly pause during the early days of the pandemic, pivot to PPP, and then relaunch. And now with originations there, you know, back to pre-pandemic levels with continued strong results, encouraging results that we've seen with respect to loss rates and repayment rates. As you noted, cash at borrow is another aspect of a loan product or a credit product that we have been experimenting and ramping and one that we're also excited about for the future, but obviously want to do that in a deliberate and responsible way. And then of course, after pay receivables are another key piece. And as you heard earlier, that's another one where we have seen loss rates consistent with historical ranges. as we've onboarded things like soft credit checks and other means that really responsibly onboard quality customers. And as we gather data across these platforms, we have the ability to sort of uniquely underwrite a lot of these customers whether consumers in the Cash App platform or sellers in the Square platform. So it's a key part of what we see our customers need and therefore an opportunity for us to, as you note, expand ARPU as an ecosystem product that helps our customers ultimately grow and eventually use other products within the platform as well.
spk07: Thank you. Your next question comes from the line of Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi.
spk09: Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. Pete Christensen from Citi. Your line is open. Please go ahead. In that vein, does Block see social as a potential component of the forward growth algorithm here? Thank you.
spk12: Absolutely. I mean, payments is inherently social. There's a reason that Cash App remains in the top 10 of the App Store every day. You know, a lot of the benefit we get from customers and just the very model, the network effects built into it is the fact that, you know, someone wants to pay someone else and they send a cash up request or actually send money and that person downloads the app. And that's just at the very, very base foundational layer. We think there's a lot more. We think it's discovery tab that we have been talking about on this call with Afterpay. is a another step into it we certainly think there's social networks within the seller side the employee base of those sellers obviously within cash app and also obviously within title which is one of the reasons we we acquired that company as well is to make sure that we are recognizing that payments is inherently something that people number one, do at least weekly and is a very social thing. So we want to make sure that we are reflecting that in the app, in the architecture, and how we actually deliver the service to customers all around the world. We're going to talk a lot about this at our investor day. And I'm really excited to see you all again on the 18th because this is the first time in five years we've had a chance to really tell our story. And a lot has changed in those five years. Our first investor day cash app was barely mentioned. I don't think even had a slide. So this is this is our opportunity to actually show you how we've grown these ecosystems that we've not only proven we can grow one to massive scale, but two and the real power in our model. is how they connect and how we add new ecosystems that are serving even newer audiences and newer audience on a customer basis. So really excited to tell the story and can't wait to get into it. But absolutely, we think the social layer is a really important part of what we do in the future.
spk07: Thank you. Your next question comes from the line of Mike Nung from Goldman Sachs. Your line is open. Please go ahead.
spk03: Hey, good afternoon. Thank you very much for the question. I was just wondering if you could provide a little bit more color around the cash card gross profit strength in the quarter. Was that largely driven by transacting user growth or increased spend? And then separately, could you just talk a little bit about the instant deposit trends in the quarter and your outlook? Thank you very much.
spk05: sure happy to happy to jump in here um as you heard you know we've seen strong growth on cash card in the first quarter and into april on the first quarter cash card grew 50 year-over-year 170 when you look on a three-year kegger basis really astounding growth as um as customers find increased utility here as we've said in the past About one in three of our monthly actives within Cash App use Cash Card each month. As of December, we had said about 13 million monthly actives. It's obviously continued to grow since then. um and it's a part of our broader strategy in addressing customers from teens to their family members to the broader platform where we've found continued strong traction here and we have seen really broad-based utility where customers are spending it big box retailers discount retailers restaurants fast food groceries everyday expenses. And that utility is ultimately what drives not only new actives in the cash card, but increased utility over time on a weekly and daily basis. We also see cash card as a product that builds attached to other products, meaning that you're more likely to become a direct deposit active, for instance, if you are already a cash card active. And once you become a direct deposit active, as I mentioned in March, we had $1.5 million. in the month of direct deposit active, you're more likely to use your cash card more frequently because you have more of your inflows coming into Cash App and it's top of mind for you. So it's still early on the trend for both of these. For cash card as a percent of monthly actives and then direct deposit as a percent of cash card actives, we see a tremendous runway to increase, frankly, the attached and daily utility of both. From an instant deposit perspective, we continue to see traction here as well. Of course, there are use cases in which customers need to move their money outside of the platform. We'd love for people to keep their money within the platform and use it in products like Cash Card. But, of course, there's utility to take money outside of Cash Apps. And we continue to see, you know, strong growth on products like that, but build a diverse – our interest is in building a diversified product set and revenue streams across multiple of these products so we're not dependent on any one and so we can increase our utility for our customers.
spk03: Great. Thank you very much for the thoughts, Maria.
spk07: Your next question. comes from the line of Ramsey Al-Azal from Barclays. Your line is open. Please go ahead.
spk08: Hi, Jackie and Amrita. Thank you so much for taking my question this afternoon. Could you give us an update on the Cash App strategy when it comes to international expansion and sort of when we might see Cash App rolled out in some new geographies? You guys are obviously actively rolling out, you know, Seller and a lot of new geographies. So, Maybe any comments you can give us on timing and or sort of like what needs to occur from a product or organizational or compliance perspective or any other types of challenges you need to overcome in order to kind of clear the way for that. Thank you.
spk12: Yeah, and as I said earlier, this remains a top priority for the Cash App team as well. We want to make sure this service is a global service so we're serving people all around the world. There's, you know, the two things Two main strategies that we're exploring for expansion. The first is with our products. And just like Square, making sure that we bring parity to new markets. So we launched some funds between the U.S. and the U.K., and I've seen steady growth of the U.K. customers in transaction frequency over the past year, learning a lot from that launch, and that will inform our next moves. And the second is through M&A. We acquired a European financial mobile app based out of Spain, which is called Burse. And that has also taught us a lot that will inform our next moves. So we want to push really hard on this, and there's multiple paths to do so. But our end goal is to make sure that Cash App is global and that we are bringing parity across all of our products to all the markets globally. in the same way that we're trying to do with the Square ecosystem.
spk05: And the Afterpay piece as well. Here, Ramsey helps with us in terms of getting access to consumer scale in markets outside the U.S. through Afterpay that we can then leverage as we bring Cash App and the Cash App brand to those markets.
spk07: Thank you. Your next question comes from Trevor Williams from Jefferies. Your line is open. Please go ahead.
spk02: Great. Thank you very much for taking the question. I was hoping to get an update on Cash App taxes and the traction that you guys have seen to date. Emerita, your comment? about this being the highest quarterly inflows you've seen i'm assuming taxes as a partial contributor to that in one queue but just any color on the percentage of the user base you've seen uptake from any way you can isolate the tailwind um to q1 and then any expectations for kind of what the cadence of the impact could be in the second quarter as well thanks
spk05: Sure. Yeah. Let me jump in here and give you some stats on cash up taxes. As you know, in January, we launched our free digital tax filing service for customers. It really simplifies the experience, which has historically been complicated, expensive, unwieldy for customers. It simplifies the experience and our customers can get their tax refunds sooner if they're direct depositing into Cash App. And at the end of tax season, we had more than a million and a half people filing their taxes with Cash App taxes. We find that these filers to Cash App taxes are more engaged with the Cash App ecosystem. They're twice as likely to use paycheck deposits in the first quarter compared to the average monthly active. um and they are um you know driving inflows as you noted into the platform you know 75 of those who used cash up taxes and have a cash card account selected cash app as their refund method we have always seen that tax season in the past has been a driver of inflows for us into cash app And we've seen that again in the first quarter. It's a piece of the inflows that come into Cash App more broadly. So I wouldn't say that that's necessarily different this quarter than in the past, what we've historically seen. But what Cash App Taxes does is it helps bring awareness to our broader banking platform, to the ability to direct deposit, and it's a utility for our customers that's seamless and provides value to them to the broader integrated suite of products that we have for them, making deposits even easier.
spk07: Thank you. Your next question comes from Josh Beck from KBCM. Your line is open. Please go ahead.
spk10: Thank you for taking the question. I wanted to ask a little bit about the in-store efforts for the BNPL space. It certainly seems like there's more energy being put. Obviously, it creates a much larger portion of the wallet that you can capture. Certainly, Africa, I think, has had really good success with this strategy internationally. Obviously, with the combination of block and square, you have lots of unique assets to, I think, potentially accelerate that. So just would be curious on how important the in-store component you see for BNPL as a driver for that segment.
spk12: When you say in-store, you mean, you know, people actually being present within the store, person to person? Yes. Yeah, I mean, that I think is the beautiful thing about our model is we, you know, our focus on omni-channel means that we don't really have any boundaries with regards to where customers are. So, you know, Afterpay and a lot of buy-not-pay-later services have focused traditionally on e-commerce, and we wanted to make sure that our solutions work everywhere, whether that be through a phone order or online or offline at the store. And the experience should be more or less the same throughout. So I think all these, you know, all these behaviors tend to ebb and flow. You see, you know, a lot of activity in e-commerce and then you see more in offline and vice versa. We just want to make sure that we provide the ultimate flexibility to our sellers. It doesn't matter where the customers are. We want to help them make the sale. And the reason afterpay is so important to us is because the buy now, pay later functionality in the use case allows our sellers to make more sales. And it allows their customers to quickly act on their decision in a very favorable way. So we certainly expect a lot of strength offline as we do online. And as we ramp up, our experiments with the Discover tab in Cash App. Obviously, we'll see a lot more of that online activity, but we can also use that to drive people to offline experiences at merchants around them and within their neighborhood. I think that's really special, really unique. It hasn't been done before, as far as I know, in a cohesive way. And certainly not to the simplicity extent that we bring to bear with all of our services and all of our apps.
spk05: And I'll just add to that, Josh, you've heard us talk about this in the past, I think last quarter, too, that what we see for afterpay in their more established markets like Australia and New Zealand, what we see there is an increasing presence across omnichannel, not just online, but also in person. And that omnichannel consumers, you know, consumers who are using buy now, pay later in person as well as online transact at higher rates than online only consumers because it's become a part of how they manage their cash flows. It's become top of mind for them in terms of how they make purchases. And that is something that we think, as Jack spoke to, is unique about our platform in that there's a lot of complementarity between the Square platform and the Afterpay platform and how we can help Afterpay grow with our access to millions of sellers across the U.S. and outside the U.S., both online and in person.
spk07: Thank you. Your next question comes from Jason Kofferberg from Bank of America. Your line is open. Please go ahead.
spk11: Hey, thanks, guys. I just wanted to come back to a couple of the April metrics, specifically the Square, GPV, year-over-year growth, and the Cash App, gross profit, year-over-year growth. If I'm not mistaken, the year-over-year comps actually get quite a bit easier, I believe, in May and June relative to April levels for both those metrics. So is it reasonable to think that growth could accelerate off those April levels against those easier comps during the balance of the quarter, I mean, assuming no significant macro changes? And then just a quick housekeeping clarification on the OPEX growth for the year, X, After pay, I think you said $1.2 billion. Am I right that last quarter it was $1.3? So you're $100 million less now? Thank you.
spk05: Sure. So what I would say for April is that, you know, you're right that March and April last year are tough comps for us because of the significant government fund disbursements that came about last year. That's part of why I would orient you more to those three-year CAGR metrics that I was sharing for April, where we do see some more consistency between the periods that we're looking at here from Q1 into April and where you do get to normalize around some of those COVID comps that you're speaking to in the prior year timeframe. So again, I would orient you to the three-year metrics that we're seeing where square GPV growth on a three-year basis in April came in at about 24%. cash up gross profit X after pay coming in at about 85%. And so still strong continued growth. And again, the three-year CAGR will help normalize for some of the year over year. The second part of your question on OPEX was really just some refinement for us based on the pacing of the expected investments for the remainder of the year. The reduction here is relatively minimal in the context of the broader non-GAAP OPEX expected investments for 2022, less than a 4% decrease as we refine these numbers. And for block X afterpay, it's really just about reflecting the pacing spend for some of the newer and experimental marketing channels.
spk07: Thank you. And for our last question, we have Brian Kearns from Deutsche Bank. Your line is open. Please go ahead.
spk11: Hey, guys. Thanks for fitting me in, and congrats on the solid results here. The one question I had was on after pay. The growth rate decelerated some off of last year's pace. In April, I think you talked about expect something around a 15% volume growth, which is probably going to be below some of the industry peers. So just trying to figure out how much of that is that you guys really haven't fully rolled out. integration into the product yet and would expect that number to accelerate from here? And how much is that maybe taking a more conservative risk profile given the macro environment we're in? Thanks.
spk05: Sure. What I would say for Afterpay is that our focus in the near term is around growing our customer base, managing our loss rate, and driving increased consumer frequency, as I mentioned earlier. And we're happy with the progress we're making on each of those pieces. And you're right, we have not yet fully integrated or seen the vision come to life yet across the connecting points between merchants and consumers with our Square and Cash App platform. You'll hear a lot more about that in a couple of weeks at Investor Day. Our teams are deep at work on that integrated commerce vision. And we have so much more to come on that, which we're really excited about. We really think we have a differentiated offering to provide over the long term here, as we think about how our commerce platform will be different from others. And we think we can be truly differentiated on non-price factors. When you think about the consumer scale that we have across Cash App and Afterpay, we And then when you think about the merchant scale that we have across Square and Afterpay, we believe that what we're building will be resilient and a sustainable strategy over the long term for both sides of the ecosystem, merchants and consumers. We hope to lay all that out for you at Investor Day on May 18.
spk07: Thank you, presenters. Ladies and gentlemen, thank you for participating in today's program. This concludes the today's call. You may all disconnect. Thank you.
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