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Operator
Good day, ladies and gentlemen, and welcome to the block fourth quarter 2023 earnings conference call. I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead.
Nikhil Dixit
Hi, everyone. Thanks for joining our fourth quarter 2023 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. We would also like to remind everyone that we will be making forward-looking statements on this call. All statements other than statements of historical fact could be deemed to be forward-looking. These forward-looking statements include discussions of our outlook and guidance, as well as our long-term targets and goals, and we may decide to shift our priorities or move away from these targets and goals at any time. These statements are subject to risks and uncertainties. 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. Further, discussion during this call of Cash App's banking services refer to those offered through our bank partners. 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, profit growth, and adjusted operating income margins. 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 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. Finally, this call in its entirely 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. Last quarter, I focused our shareholder letter on how we're going to grow Square through four priorities. This quarter, our letter is about cash-out strategy and our goal to become one of the top providers of banking services to households in the US. If you haven't yet, please read that letter for details. As we did last quarter, to maximize time for your questions, we're going to focus our opening remarks on Amrita providing more details on the financials. Over to Amrita.
Amrita
Thanks, Jack. There are two broad topics I'd like to cover. First, where we've been, in particular our performance for the full year and fourth quarter of 2023, where we saw strong growth and meaningful improvements in profitability, driving progress against our investment framework. Second, where we're headed, our expectations for 2024, our guidance for the first quarter, recent trends we've seen, and ways we'll look to drive improvements on Rule of 40. Let's start with our strong growth and efficiency in 2023 as we continue to drive toward our Rule of 40 target in 2026. We ended 2023 with $7.5 billion in gross profit for the year, up 25% year over year, or 24% on a combined company basis. Our heightened focus on efficiency helped us improve profitability during the year. Adjusted EBITDA was $1.79 billion, up 81% year over year, and 24% margin on gross profit, our highest ever. Adjusted operating income, which as a reminder includes expenses related to stock-based compensation and depreciation, was $351 million, our highest yet, representing a 5% margin on gross profit and compared to a loss of $145 million a year ago. Cash flow generation also improved this year. as adjusted free cash flow for 2023 was $515 million, up from negative $346 million a year ago. Taking the components together, we achieved rule of 29 in 2023 on a combined company basis, which was a few points higher than our guidance as of the third quarter. The other component of our investment framework is gross profit retention, which shows our ability to retain a customer over time and is an indication of whether our products, pricing, and support are valued by our customers. During 2023, Square and Cash App each achieved positive gross profit retention in aggregate across our annual cohorts. Square cohorts saw strengths in software and banking, offset softness in processing volumes during the year. Cash App benefited from growth in inflows per active, driven by financial services products and monetization from pricing changes. In the fourth quarter, gross profit was $2.03 billion, up 22% year over year. Adjusted EBITDA was $562 million, and adjusted operating income was $185 million, both higher than our guidance, driven by continued discipline and discretionary spend. On a GAAP basis, operating loss of $131 million was impacted by a goodwill impairment of $132 million, Deference expenses of $70 million, primarily related to our recent organizational restructuring, and lease impairment restructuring expenses of $34 million. Also, as a reminder, starting in the fourth quarter, we restructured our commerce efforts by moving our BNPL platform fully into Cash App. We are reflecting this change in our fourth quarter and 2023 gross profit results, as well as prior periods. Let's get into the drivers for each of Square and Cash App in the fourth quarter. Square generated $828 million in gross profit, up 18% year-over-year. Square GPV was up 10% year-over-year in the fourth quarter. While we experienced positive acquisition and stable churn of existing sellers compared to prior periods, GPV per seller continued to be affected by slower discretionary spend in the U.S., and consistent with what we shared last quarter, we've also seen a lower gross profit contribution from ramping cohorts of sellers. Within our card not present volume, we saw solid growth in online volumes, up 11% year over year. This was partially offset by a decline in manual keyed entry, or MKE volumes, where a seller manually enters card information into a payment device, either in person or over the phone. This has been an ongoing trend, with MKE volume now representing just 13% of Square GPV in the fourth quarter of 2023, compared to more than 16% two years prior. We expect the headwind from MKE transactions to remain for some time, although its impact should moderate as we expect software-enabled payments to become an increasing driver of our business. While Square GPV growth has moderated, driven by GPV per seller and MKE declines, our banking products and vertical points of sale solutions delivered strong growth, with gross profit from these products up 28% and 27% year-over-year respectively. Cash App generated $1.18 billion in gross profit in the fourth quarter, an increase of 25% year-over-year. Looking at the components of the inflows framework, which as a reminder does not include our BNPL platform, as of December, Cash App had 56 million monthly transacting actives, up 9% year-over-year. Inflows per transacting active, averaged $1,137 in the fourth quarter, up 8% year-over-year, driven by increasing adoption of our financial services products over the past year. Cash App Card continued to increase its scale and introduce customers to financial services within Cash App. Cash App Card reached 23 million monthly active, representing more than 40% of our total active base in December, and growing 20% compared to the prior year, more than twice as fast as overall monthly transacting active. Monetization rate was 1.48%, up nine basis points year over year and five basis points quarter over quarter. Improvement from the third quarter was driven by a number of factors, including an increase in Bitcoin gross profit from pricing changes implemented during the quarter. Turning to our BNPL platform, which contributed $242 million of gross profit to Cash App in the fourth quarter. GMV from our BNPL platform was $8.6 billion in the fourth quarter, up 25% year over year, driven by strength across our pay-in-four offering, as well as single-use payments, which allows customers in the U.S., U.K., and Australia to shop via the Afterpay app at merchants we don't have a direct relationship with and pay using BNPL. Losses on consumer receivables were 1% of GMV, consistent with historical ranges. As Jack included in his letter, integrating commerce payments tools is a key focus for us next year, and we see powering BNPL through Cash App Card as a significant opportunity. Turning to our guidance, we've committed to achieving our Rule of 40 target in 2026. Our primary objective in 2024 is to deliver an improvement from the Rule of 29 we achieved in 2023 on a combined company basis. To achieve this, We have put forward an initial guidance that we intend to exceed by at least one point of outperformance during the year, either on gross profit growth or adjusted operating income margin or both. As we did last year, we are working to identify growth opportunities and additional efficiencies that further progress us towards Rule of 40. For the full year 2024, we are expecting at least $8.65 billion in gross profit, or at least 15% growth year over year. By ecosystem, we expect Cash App to grow faster than Square, but for growth to moderate from 2023 as we lap pricing changes and other initiatives that improved our cost structure. As we look to 2024 and beyond, we are focusing our efforts on driving engagement through product adoption and product velocity. Within Square, we expect software and integrated payments and banking to be continued drivers of growth. We believe the work we put towards our new strategic priorities and the investment behind several go-to-market initiatives can improve seller acquisition over the next few years. On profitability, we are raising our full-year guidance and now expect adjusted operating income of at least $1.15 billion compared to our preliminary guide of $875 million and adjusted EBITDA of at least $2.63 billion versus $2.4 billion. This represents year-over-year margin expansion of approximately nine points on adjusted operating income and seven points on adjusted EBITDA. As we continue to focus on managing costs, we expect to achieve leverage on share-based compensation expenses as a percentage of gross profit compared to 2023. This guidance on growth and profitability is based on the visibility we have into our business today with no significant changes to the macro environment. Lastly, our guidance for the first quarter of 2024, we expect to deliver between $2 to $2.02 billion in gross profit, or 17% growth as a midpoint. For Square, we expect gross profit and GPV to moderate slightly compared to the fourth quarter's 18% and 10% respectively. So far this year, weather has periodically impacted Square GPV in the U.S. particularly in january where we saw it drive a three to four point moderation in growth as certain regions experience impacts to in-person volumes particularly within food and drink and retail for cash up we expect growth to be driven by actives and inflows proactive in the first quarter we expect the gross profit growth rate to moderate compared to the fourth quarter's 25 percent as we'll be lapping tougher tougher comparisons looking at profitability we plan to deliver both quarter-over-quarter and year-over-year growth, with adjusted operating income of $225 to $245 million and adjusted EBITDA of $570 to $590 million. The respective midpoints represent margins of 12% and 29% and year-over-year growth of 361% and 57%, demonstrating our continued focus on driving profitable growth With that, I'll now turn it back to the operator to start the Q&A portion of the call. Thank you.
Operator
If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw that question, again, press star one. And we ask that you please limit yourself to one question. For any additional questions, please re-queue. Your first question comes from the line of Tin Siang Huang from JP Morgan. Please go ahead.
spk08
Thank you, thank you. So you acted really quickly here on cost. I want to ask how quickly you can attack growth in 24. Really, product velocity is the question here in your letter, Jack. You talk about closing product gaps in Cash App and reclaiming leadership in engineering and design at Square. How quickly can you get there, and when might we see some measurable benefits to growth in 24? Thanks.
Jack
Yeah, across the board in every one of our business units, we've been going through an exercise in order to simplify how we work so we can move much faster. And that's inclusive of Square and Cash App and Tidal and TBD. So you should expect a much higher product velocity across the board. With Square in particular, we've been doing a lot of platform work. This is our number one priority. to ensure that we can move much faster with some features and feature gaps that have held us back from certain customers, namely with food and BEV. We have, for example, pre-auth coming this year. And when those platform elements unlock, it's just going to unlock a whole bunch of speed across restaurants, retail, services, and I believe we'll be able to push really hard and see really good outcomes. On the Cash App, where we're going to benefit a lot from is the focus on the banking relationships. We've been focused a lot of our... We've been pulling the thread, I should say, on banking relationships for quite some time. And we have proven out the model with the success of the Cash App card, and it's really focused a lot of our efforts in order to, as I said in the shareholder letter, bank our base. So our strategy is to make sure that we are the best choice and the first choice for anyone looking who's making under $150,000 to see Cash App as their primary bank. And that has to do... One of the biggest signals is that the majority of their direct deposit is going into Cash App. So we're going to move very fast because we have a much more focused roadmap and the roadmap against banking in particular. And as we said in the letter and in a lot of detail, I think we'll see very positive outcomes from that focus and allows us to go to two parts, two and three of that strategy, which is on on families and also becoming a social bank cash app is inherently social we have this incredible network effect through starting with peer-to-peer and we have this opportunity to make it even more social and really look deeply at the local payments and local commerce in particular and that's where the intersection with square comes into play we're going to start putting our our square customers first and foremost in the cash app and and you really see the the power of our combined ecosystems and the combined network.
Amrita
And I just add, Chintan, just to tie this together with our 2024 outlook, you know, our guidance philosophy is to guide based on our current run rate trends in our business, what we're seeing in the business quarter to date as of earnings and the known expense and growth levers that we've, you know, incorporated into our plan entering the year. So a lot of the refocused strategy and key growth initiatives that we're discussing are not included in our 2024 expectations, given how recent they are and that they provide us with opportunities to outperform relative to this initial guidance, whether it's the product platform or go-to-market experimentation within the Square business or the Cash App Bank the Base strategy. We're hard at work at each of those elements, and we expect those to deliver for us as we get into later into the year in 2025 and beyond, but still early days.
Operator
Our next question comes from the line of Timothy Chiodo from UBS. Please go ahead.
Timothy Chiodo
Great. Thank you for taking the question. I want to dig in a little bit to the square distribution approach. You've talked about building out the vertical outbound sales teams and also potentially experimenting with local in-market sales teams. And also saw in the shareholder letter, you mentioned the revamped referral program, but maybe you could expand upon how Square views the potential to partner with banks and ISOs. So adding bank partners for distribution, adding ISOs to get broader coverage across the nation and the various considerations and how you sort of view the potential for that. in the future. Thank you.
Jack
Yep. We're definitely open to this. We tried this in the past in our first few years as a company. As many of you know, JPMorgan Chase was one of our earliest investors, our Series B. And we had square readers in every single branch in the United States. It wasn't that effective. I think that particular strategy just did not work because the expectation of the customer coming in especially for business banking, for whatever reason, was off. That's not to say that all these channels don't work. Obviously, it does work for a few of our competitors. And we're certainly open to them and open to exploring them. I think the biggest thing that is really important for Square is certainly our go-to-market approach, but our product itself is where I want to put a lot of our focus. One of the things that we're doing Soon is where right now we have about four or five apps in the app store. It's pretty confusing to direct people to the app store and and when they get there. Really, you know it's it's a function of apples search results as to whether they find this or not. The app they need, especially if they're a restaurant or retail or services organization. So what we're going to do is we're going to go back to having one app. It's just going to be called square. And we can easily say to anyone that you can go to Square or you can download Square. You have everything you need. The interface and navigation and features will dynamically shift based on the type of merchant you say you are and shift over time as you get more and more sophisticated with the software. And we can also obviously help folks with our sales team to guide them through. But I think generally it would be a whole lot simpler. We have massive success with self-serve. And as we do add referral engines and be more targeted with them, specifically within food and beverage and restaurants, having a much simpler way to get the app to use it and to get up and started, whether you're a micro merchant, just one person, sole proprietorship, or all the way up to multi-location, multi-country. So that's the goal. And we'll realize all that this year. And I think that's really going to unlock a ton of growth and make anything that we do from a distribution standpoint, whether it be through ISOs or bank partnerships, or what I think is more important through very targeted channels for restaurants and services and retail, it's going to make it that much better. And most importantly, we'll focus on retaining, which is a big aspect. The other thing that I think will help us retain, which is a core part of our strategy, number four, is banking. We have nine products within the market. They're only going to get stronger. It's the thing that truly differentiates us from our peers. And, you know, we not only have an ecosystem that serves our entire business, but we have the equivalent of business banking account. Just like there's JP Moore and Chase branches that they're going to in the past. They can get a card. They can get a credit card. They can get a line of credit. They can get a loan, as we've been doing for quite some time. And that it's integrated all into one stack with one app download is hugely unique and also hugely important to our sellers. So I think it's going to be amazing.
JPMorgan Chase
Thank you, Jack.
Operator
Your next question comes from the line of Darren Peller from Wolf Research. Please go ahead.
Darren Peller
Hey, guys. Thank you. Just to hone in a little bit more on direct deposit, it obviously is moving to the forefront around Cash App for your strategy on it. And look, I mean, we obviously see a notable set of banking assets you've been able to package for your MAUs. But if you can just expand on what you see actually driving adoption or accelerated adoption of direct deposit now, getting that 2 million to say 5 or 10 million users versus I know there's been some prior attempts to make that happen. And then, Jack, maybe just what timeframe would you consider a success on this front in terms of an incremental maybe 5% or 10% of Cash App users taking on direct deposit?
Jack
I think the biggest driver is going to be easy, connected banking features that just work and that people can trust. We want to make sure that people see Cash App as reliable, as dependable, as something that they trust their money with and their full direct deposit of their paycheck with. And trust is the one input, but a big factor of that is the output. What can I actually do with it? And the Cash App card has been one of our most successful products within Cash App. It's extremely easy to get a card. It's extremely easy to personalize it, to use it, to change it. to give it to family members. So there's a lot that's attractive there. There are some gaps that we're missing that traditional banks offer that we do not. But really, the roadmap is filling those gaps and doing so in an intuitive, well-designed way that feels fresh and benefits from technology to give time back to the customer. And then as people see that and as people use it and they talk with their friends and their family about it, um that's that's the growth uh that's that's how direct deposit um grows and people you know again trust us more and more to put more of their paycheck in the cash app because they know they can use it in very traditional ways that are reliable but also entirely new ways and it all fits together perfectly and seamlessly um so expectations uh we want to move as fast as possible the the fact that we're no longer focusing on expanding globally for right now. We're focusing on banking our base in the United States. It's going to allow us to move much faster, and I think we'll see outcomes much faster than we have traditionally. And this is the base foundation for our other two priorities, which is moving more upmarket with families, which we've seen some early positive signs from, and then really going after You know, being a social bank, starting with peer-to-peer, but expanding beyond that and really getting into neighborhoods and local communities and focusing a lot more on commerce. So all these tools add up to a desire, we believe, to put more of my money with Cash App and use it there. And hopefully, you know, more and more becomes 100%.
Amrita
And Darren, just to go a little bit deeper on some of the actual features that we think will be compelling for customers, we've got a bunch of features. We're rolling out more features to give customers an experience beyond what's available in the market today. So today, we think our direct deposit offering is differentiated with no fees or minimums, early direct deposit availability. and the benefit of our active money being in the broader cash-up ecosystem where they can send, spend on cash-up card or cash-up pay, invest it, et cetera. We're also focused on the new products and features that drive engagement. So for example, we recently launched free overdraft coverage up to a certain amount. We introduced yield on savings balances and allowed for automatic paycheck distributions. So we're prioritizing launching products that customers expect from us before they start bringing in more of their money. Today, it's about 2 million paycheck deposit actives as of December, about 3% of our monthly actives, but this will be one of the key KPIs along with broader inflows per active that we're focused on driving forward as part of our bank-to-base strategy.
Darren Peller
That's great. Thanks, guys.
Operator
Your next question comes from the line of Mike Ng from Goldman Sachs. Please go ahead.
Mike Ng
Hey, good afternoon. Thank you very much for the question. I think your 2024 outlook implies OPEX growth of about 4%. Would you just discuss your confidence in being able to achieve that at least 15% gross profit growth against the backdrop of this tight cost management? And then what signals are you looking for when deciding whether to invest in OPEX more aggressively again? Thank you.
Amrita
I can start maybe with a reminder of kind of the key areas of operating expense leverage that we've been pursuing, and which we believe still continue to have opportunity against. And that, you know, those constraints are clarifying for us actually in supporting, you know, further scoping, prioritization, and operational excellence in how our teams operate. But the key category is being One, personnel. Obviously, you heard from us last quarter our constraint around people, which at the 12,000-person cap, which we're currently operating under, and expect to for some time. That unlocks a tremendous amount of leverage for us, both from a non-GAAP operating expense perspective as well as leverage from an SBC perspective. And you see that reflected in our expectations for 2024. And that constraint, again, is what leads to stronger prioritization and focus. in the areas that will impact our customers the most and ultimately lead to profitable growth. The other key focus area for us is around corporate overhead expenses, where we've already seen opportunity to get more efficient, whether it's things like third-party spend with vendors, real estate, T&E, data and cloud fees, professional fees, et cetera. We have an opportunity to continue to refine how we operate to make sure that we are operating with the greatest amount of discipline, constraint, and efficiency. And then as we look longer term, of course, there are new technologies like AI that we can be leveraging in-house, not only in terms of the products that we're serving our customers, but that deliver efficiency to our teams internally, whether it's customer service or sales or engineering and design. And then, of course, structural costs, which we've already made some headway on with some partner renegotiations last year, but we'll continue to pursue in terms of unit economic improvement across our base of products. So there are a number of different areas for us that we've already been digging deep into and for us to continue to do that, that actually support our opportunity to continue to grow our platforms and grow our overall gross profit.
Jack
Great. Thank you, Amrita. Sorry, the two things I would add to that is just to emphasize what Amrita said about AI. I mean, you all have been hearing AI constantly in all these calls in terms of efficiency, but it's going to be extremely impactful for us as we look at everything that we're doing and all the tools that we're building and how much more productive it makes all of our engineers and I think in the very near future our designers as well. That allows us to learn much faster. It allows us to ship faster. allows us to correct mistakes much faster and really be ahead of the market where we think our strength is, which is creativity and bringing all these very complex systems together. And the second thing is about three years ago, we were more in a mode of letting as many flowers bloom as possible. And it created a bunch of inefficiencies between all of our ecosystems. We had a lot of duplication between Square and Cash App. And these tools and these costs just weren't really great at all. And we've done a ton of work to clean that up, and I believe there's even more to go. So I believe we can actually move much faster, ship much faster because of those two things and because we don't have such a dependence on this multitude of tools that, you know, that are all different but effectively doing the same thing or solving the same use case.
Mike Ng
That's very helpful. Thank you, Jack. Thank you, Amrita.
Operator
Your next question comes from the line of Harshita Rawat from Bernstein. Please go ahead.
spk06
Good afternoon. I want to ask about cash app and commerce. Cash app is growing rapidly, although from small base. Can you give us some color on the composition of these volumes, for example, within Square Merchants or online? You've had some very interesting merchant-acquired partnerships to enable Cash App Day recently as a payment option online. What are some of the most salient things you can do to kind of grow Cash App Day penetration in e-com? And also, just related to Cash App overall, can you also talk about your compliance investments in KYC and EMA as you grow Pancake?
Amrita
Thank you. Yeah, I'll start off, Rashida, on Cash App Pay. We're really excited about the progress that we've seen over the past year and how quickly we've been able to drive growth as we've expanded to more and more merchants. This is a key part of how we integrate commerce tools more broadly into Cash App over the next several years. We see Cash App Pay as a seamless way for customers to spend, especially online, and provides more ways for our customers to spend beyond using Cash App Card. We ended December with 3 million monthly actives and $2.5 billion in annualized GPV, which has more than tripled since what we reported to you last June. Growth here has been driven through recent partnerships such as DoorDash, Adyen, Stripe. We have a strong pipeline as well of large merchants we're exploring to continue to expand our reach. Of course, Afterpay's enterprise sales team has been critical here and allowed us to scale quickly by leveraging existing relationships and the quality of their sales organization. I think the second part of your question was about Cash App Commerce, or can you repeat the other? Can we answer your question first? Yeah.
spk06
Yeah. So just, you know, the compliance investment just more broadly within Cash App, not just related to Cash App, especially as we focus now more into banking.
Jack
Sorry, compliance investment more broadly across the company?
spk06
No, within Cash App, I was just kind of thinking about some recent media reports suggesting regulatory code.
Jack
Yeah, absolutely. So compliance, security, fraud, risk, these are all areas that are constant iterations. We're never going to build a perfect system. We can only focus on velocity and speed. And any errors that we've had in the past, you know, our goal right now is to make sure that we correct them quickly and that we continue to build those learnings into the future and that we stay 10 steps ahead of any adversaries. And that's been a big focus for us for years. But we've put even more emphasis on this right now because we do want to earn more trust with the use case of banking and being that primary bank for people. And obviously, this is a big, big part of having that trust. We want people to trust that if they put 100% of their paycheck into cash abstract deposit and utilize it, that it's sound and they can do everything that they want without restriction and that it just works. So this is a significant investment for us and will continue to grow. But we have entirely new technologies available to us now that makes this work even more efficient, much better, and we can be far more exhaustive and far more precise in our approach than we have ever in the past.
Operator
Your next question comes from the line of Trevor Williams from Jefferies. Please go ahead.
Trevor Williams
Great. Thanks for taking the question. I want to follow up on the product pipeline in Cash App, especially around commerce and the new products you expect to layer in this year. In the letter, Cash App card was mentioned as a way to distribute BNPL, which I think that's something we haven't heard from you guys before. If you could dig into that and then just how much contribution, at least within what you're expecting for Cash App that you're baking in from some of these newer initiatives around commerce within the full year outlook. Thanks.
Jack
Yeah, I mean, so we've been doing a bunch of work since we first acquired Afterpay. As you all know, we had more or less split the org between Square and Cash App. We realized last year that that was incorrect and that we should put the majority of it within Cash App because that's where the greatest benefit is going to be. And that's first and foremost in discovery in Cash App and discovery of commerce. whether it be global, internet commerce, e-commerce, or more local commerce, such as Square Merchants. But we have an incredible asset in Afterpay, and we have an incredible asset in the Cash App card and that distribution. So we're looking for all the tools, all the financial tools that Afterpay has created will be right within Cash App and right within the card. And as I talked about on past calls, you can imagine Just as you would on the cash card today in the app, you can turn on Boost and get offers and see these things in real time and interchange them. We want that same sort of feeling for Buy Now, Pay Later on the card itself. And this opens the door for our customers to treat every single merchant that they go to as a Buy Now, Pay Later entity, which is pretty awesome and pretty cool, and we're excited about it. So there's a lot there with the financial tools within Cash App and also within the Afterpay app itself within Australia. We have a lot of opportunity to continue to grow and to push, but this will be a year of much, much tighter integration and much more visibility of the Afterpay tools and the use cases within Cash App itself.
Amrita
And in terms of... you know, how we think about our outlook with respect to some of these newer products that we'll be launching later this year and into next year. As I said earlier, our guide is based on primarily on our current run rate trends in the business and known elements around expenses and growth levers. And typically we're moving quickly to improve our product velocity, but typically as we launch these products, they take time to ramp. So I'd expect to see greater benefits later in the year but primarily heading into 2025 and beyond as we move quickly against these commerce and banking and financial services products within cash app your next question comes from the line of brian bergen from td cowan please go ahead great thanks so much for taking the question
spk03
Do your broader banking aspirations require you to do anything different on the banking license side or act differently? Should your efforts on the banking side be successful? Can you still leverage partner banks or do you need to go with direct licenses?
Jack
Thanks. Great question. It doesn't necessarily require us to do anything differently. We do have Square Financial Services, our bank, and we're very excited about the expanded potential use cases that we can utilize it for in addition to the ones today which are around loans. So we want to make sure that the bank itself can help us provide more efficiency and provide speed, much tighter integration so that we can have much more cohesive experiences. And it doesn't limit us from using partner banks. think of these as a portfolio. We can use multiple banks, including our own, to do various things in the future. And we have a lot more flexibility as that comes more online. And what's fully going to rule all this is the product experience that we can offer to people. And obviously, that we can do it with new technology that makes it easier and and much more profitable than a traditional bank could. So that is our focus, and we don't see any significant changes in how we build products coming up.
spk03
Great. Thanks very much.
Operator
Your next question comes from the line of Ken Czajkowski from Autonomous Research. Please go ahead.
Ken Czajkowski
Hi, good afternoon. Thanks for taking the question. I think you mentioned in the quarterly letter that the 2022 and 2023 Square cohorts are tracking to a six to seven quarterly payback period. How are you guys thinking about the payback period for 2024, 2025? And if you can comment on how you're thinking about marketing spend in Square for the year, that'd be great. Thanks so much.
Amrita
Sure, happy to kick off on what we've seen recently and what we expect moving forward. We orient primarily to ROI, the returns that we see over a four-year period in how we go to market across the Square ecosystem. And as we're able to attach more products to our customers, as they're able to grow on our platform, that extends the lifetime value of these customers and ultimately what we're able to invest in. into go-to-market initiatives to bring customers into the Square ecosystem. So I would orient you more to ROIs, where we've seen healthy ROIs at sort of 3x over four years in the past, and we'll continue to focus on ROI moving forward. Across our initiatives, you know, I think the key focus for us is the pace of experimentation across both sales and marketing. We're going to orient more of our spend in marketing to proven channels, but we'll have a number of our efforts from a team perspective on trying new things in small ways so that we can iterate rapidly and learn. Whether that's in sales where we've now deployed contracts or where we're taking a local approach with referrals or we're bundling our products differently as we did with the restaurant's essentials bundle to create simple pricing uh you know one simple price for a set of customers across the restaurant's vertical we are doing a number of different things to drive uh you know cohesion and how a customer can onboard into the square ecosystem and as jack mentioned earlier from the product initiatives around our single app strategy and our platform initiatives are key unlocks for us as we think about more efficient onboarding of customers into the broader ecosystem
Jack
The only thing I'd add there is, as I said in the letter, we're doing a reorg with Square, back to a functional organization. And one of the results of that is to bring product and marketing much, much closer together. This is how we started the company. And we believe that the gaps that we had in the recent past really hurt our aspirations and our execution. And the reason why is we want to make sure that there's a very, very smooth ramp from any marketing that we do and that it be targeted or more out of home and the actual sign-up flow and the customer experience they get when they come to the website or when they get a number to call one of our sales folks. So the organizational structure I think will help illuminate a lot of the issues we've had in the past, and we're focused on really making sure that they work together a whole lot better so we can move much faster.
Ken Czajkowski
Great. Thanks, Jack. Thanks, Dan and Rita.
Operator
Your next question comes from the line of Brian Keane from Deutsche Bank. Please go ahead.
Brian Keane
Hi, guys. Wanted to ask about the cash ad monetization rate. I think it was up five basis points sequentially. If I recall correctly, I think you thought it would be more stable sequentially. So I guess what kind of surprised and drove the outperformance in the monetization rate? I think you called out Bitcoin and pricing. So just curious exactly on the pricing side where that's coming from and then any color on how monetization rate will trend as we go through 2024.
Amrita
Sure. So what we saw in the fourth quarter was nine basis point improvement year over year, and uh five basis point quarter of a quarter to your question specifically on quarter of a quarter there are a couple different factors at play but the primary ones were around bitcoin and within bitcoin it was both the pricing of the product um as well as the price appreciation of bitcoin itself which benefited monetization rate on a sequential basis um as we look forward um you know we see opportunities in 2024 around actives and inflows per active as the primary drivers of growth for Cash App in 2024. As we look longer term, we see opportunities around monetization rate as we go deeper in the financial services ecosystem and we attach more of these products to our customer base. As our customers take on more and more products themselves, we see an opportunity to grow monetization rate But as we'll be lapping some of these pricing changes coming up in 2024, we don't expect, you know, meaningful change in monetization rate and certainly not at the meaningful level that we saw during 2023. Thank you.
Operator
Your next question comes from the line of Pete Christensen from Citi. Please go ahead.
JPMorgan Chase
Thank you. Good evening. Thanks for the question. I'm curious, could you walk us through the mechanics on the yield, the savings product for direct deposit users and cash app? And Amrita, I'm curious your thesis on, I guess, the relative unit economics for that particular product and how you see that evolving. Thank you.
Amrita
Yeah, you know, the overall strategy is that as customers, you know, save more of their funds with us, they make us more of their primary banking partner, and then we can offer them more financial services, some of which we monetize. We have had a history of thinking about our ecosystem in terms of the entirety of the value we provide, with some products being free, like our tax product, our investing product, our peer-to-peer product, when you use a debit card. and some products being monetized. And with the savings launch where we're offering a yield for customers who direct deposit with us, a strong yield for customers who direct deposit with us at 4.5% and a more modest yield for customers who use Cash App card at about 1.5%, what we're providing is an incentive for customers to bring more inflows into Cash App. And we see a strong correlation with inflows into Cash App, you know, driving gross profit and customers being more engaged with the broader set of products across Cash App. What we've seen so far, you know, look, it's early days of these savings balances. We have balances from Cash App savings accounts totaled $200 million as of the end of the fourth quarter, representing 6% of overall customer funds. But as we've introduced more recently the yield, we'll be looking to more opportunities to attract savings and inflows and ultimately engagement with a broader suite of financial services.
JPMorgan Chase
Great. Thank you.
Operator
Your next question comes from the line of Jason Kuferberg from Bank of America. Please go ahead.
Jason Kuferberg
Thank you. I was just looking at page 18 of the shareholder letter showing the cash app gross profit mix. I think at least some of that is a new disclosure, which we appreciate. It shows you become a lot less dependent on instant deposit, financial services, becoming a much bigger part of the pie. I think it was 38% in 2023. So I'm just wondering, as you execute on the bank to base strategy, is there any kind of target in mind in terms of the percent of cash app gross profit that may come from financial services say by, you know, 2026 as you pursue the rule of 40 that year. And just separately, Amrita, real quick, any comments on free cash flow for 2024? Thank you.
Amrita
Sure. You know, look, financial services at 38% in 2023 as a percent of cash-out gross profit versus 29%, you know, two years prior. is obviously a key growth factor for us within Cash App, as you note in our new disclosure in the shareholder letter. And it's one that we're going to continue to focus on as we grow out the broader set of products, as you've been hearing today and as you saw in Jack's note in the shareholder letter. So that is one that I would continue to focus on. We still have seen growth in instant deposit and other parts of the ecosystem. but just not as fast as some of the financial services products. So we'll continue to lean in there. With respect to free cash flow, you know, I'd orient you to the trend lines across EBITDA. Obviously the free cash flow metric is a different calculation, but it's directionally, you know, where we expect to grow our profitability on an EBITDA basis. We also would expect to grow our free cash flow over time.
Jack
Thanks.
Operator
Your next question comes from the line of James Fossett from Morgan Stanley. Please go ahead.
Jack
Thank you very much. Just wanted to ask a question on the seller business. Looks like the growth rate in the U.S. decelerated a little bit, but international continues to look quite good. And just wondering how we should think about the trajectory of U.S. versus international, anticipate the mix, and any sense as to in what time frame, particularly the U.S., could be bottoming and where you think you can get that growth rate back to, especially as you focus on product, et cetera, as Jax talked about. Thanks.
Jack
Yeah. It's a big U.S. Sorry. U.S. growth is a big focus for us. And a lot of our focus right now is going to be on restaurants, food and beverage. And as I said earlier, like, I think there are significant product gaps that we have line of sight into. that will be unlocked this year that we can move much, much faster on from a development and product standpoint that we'll see results from and much greater outcomes. And we'll continue to push around the world, of course, but I really want to make sure that we advance even faster than we have in the past on the U.S. I think that's really a function of all the changes that we're making with the org with how the product is packaged and how we think about onboarding in particular and making it super easy for people and then putting a much stronger go-to-market on top of that.
Amrita
Yeah, and I just add that in addition to our focus areas in the U.S., we can benefit from those product initiatives here. in international markets as well. And we're enthusiastic about what we see in the markets outside the U.S. We think we're less than 1% penetrated in those markets that we're currently in. Outside the U.S. was a long runway for growth. And we saw GPD growth in the fourth quarter in the markets outside the U.S. grow 26% year over year. with gross profit growth about 28% year-over-year, now representing 13% of Square's gross profit, and obviously that's grown over time. So we have opportunities to continue to refine and push our product velocity in the U.S., and ultimately that will help with the significant TAM opportunity that we see outside the U.S. as well.
Operator
We will now take our last question from Andrew Bosch from Wells Fargo Securities. Please go ahead.
Andrew Bosch
Hey, guys. Thanks for squeezing me in. Just wanted to revisit the direct deposit assumptions that you're kind of making. I mean, it's nice to see that, you know, the 6X data point for those who are depositing 2,000 plus. But can you give us a sense on what the path to increasing that paycheck direct deposit mix ultimately looks like in 2024 and 2025? Are there certain unlocks you kind of need to achieve to see that ramp?
Jack
I think the biggest unlocks are going to be products. And we want to make sure that it's super easy to get in the Cash App and to see what you can do with it from a banking relationship standpoint. I want to put my money into something that I trust, first and foremost, and that has significant utility. And that the utility is broad, but also highly connected and works very fluidly. And that's what we want Cash App to be. We have a lot of the pieces there. We're going to spend this year really focused on making sure they sing and they really work in a way that makes people feel great in the same way that designing a Cash App card feels. We want that across the board for every single one of our features. And it really starts, as I said before, with trust. We need to make sure that Cash App is seen as reliable, as dependable, and with a great customer base on top of it. And this is a constant iteration to make sure that we earn that trust. But then it really comes back to, now that I have the input set, what are the outputs and what can I do with my money on Cash App that Certainly I would be able to do in a traditional bank, but what's the plus plus? What can I do more of within Cash App than I could do on another traditional bank? It really starts, I mean, as you know, with peer-to-peer and the fact that it's an app and it just works and it's fast and easy and meets my expectations and hopefully in many cases exceeds them. But there's a lot of work to get that right. and a lot of connections we can make to do that. And a lot of it comes back down to just new functionality on top of what we already have.
Amrita
Appreciate that. Andrew, I'd point you to Cash App Card as well as a key proof point for us as we bring more awareness to our financial services capabilities and ultimately to direct deposit. In the same way that peer-to-peer is the awareness driver for overall Cash App. We see Cash App Card as the awareness driver for our financial services and banking products and direct deposit. What we've seen with Cash App Card, you know, now at 23 million monthly active, growing twice as fast as our overall monthly active base, you know, at over 40% attached. is that we're at true scale in terms of the ability to drive awareness here. We surpassed a billion dollars in gross profit in 2023 for Cash App Card, and that growth was three times higher than Instant Deposit, where customers are sending their funds outside of Cash App. So we're giving people more reasons to keep their funds within Cash App. And what we've seen in terms of the behaviors and the engagement on Cash App Card has been healthy, not only with the growth in actives, but also growth in spend per active, which means that we saw meaningful growth in overall spend on Cash App Card in 2023. And finally, you know, point you to that strong engagement where customers using our banking products are ultimately more engaged. With Cash App Card monthly actives bringing in over two times more inflows, 2.3 times more inflows, and those direct deposit monthly actives bringing in seven times more inflows than a peer-to-peer active. So there's a key, you know, thing, kernel here that's working with Cash App Card that we can then bring people into the deeper suite of financial services and ultimately to direct deposit.
Andrew Bosch
Absolutely. Makes sense. Thank you.
Operator
Ladies and gentlemen thank you for participating in today's program. This does conclude the program. You may all disconnect.
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