In the Fourth Quarter 2023 Earnings Call, Square, Inc. (ticker: SQ) outlined its strategic focus on transforming Cash App into a leading provider of banking services in the United States by 2024. The company reported a gross profit of $7.5 billion for 2023, marking a 25% year-over-year growth, and an 81% increase in adjusted EBITDA. Cash App's gross profit rose by 25% year-over-year to $1.18 billion, with the Buy Now, Pay Later (BNPL) platform contributing $242 million in the fourth quarter alone. Looking forward, Square provided guidance for 2024, projecting a gross profit of $8.65 billion and an adjusted operating income of $1.15 billion.
Key Takeaways
- Square aims to make Cash App a top banking services provider in the U.S. by 2024.
- 2023 gross profit reached $7.5 billion, with a 25% year-over-year growth.
- Adjusted EBITDA increased by 81% year-over-year.
- Cash App's gross profit grew by 25% year-over-year to $1.18 billion.
- BNPL platform contributed $242 million in gross profit in the fourth quarter.
- 2024 guidance includes a gross profit of $8.65 billion and 15% year-over-year growth.
- First-quarter 2024 gross profit is expected to be between $2 billion and $2.02 billion, with a 17% growth at the midpoint.
Company Outlook
- Square forecasts a gross profit of $8.65 billion for 2024, with a 15% year-over-year increase.
- The company is targeting the Rule of 40 by 2026, balancing growth and profitability.
- Adjusted operating income for 2024 is anticipated to be $1.15 billion.
- A focus on product velocity and banking relationships is key to driving profitable growth.
Bearish Highlights
- Gross profit and GPV for Square are expected to moderate slightly compared to the fourth quarter.
Bullish Highlights
- Cash App's growth will be fueled by active users and inflows per active.
- The company plans to simplify app offerings and emphasize direct deposit to drive adoption.
- New features such as free overdraft coverage and yield on savings balances are expected to enhance user engagement.
- Cash App's expansion into commerce, particularly with the integration of Afterpay, is projected to stimulate growth.
Misses
- There were no specific misses mentioned in the provided context.
Q&A Highlights
- Jack Dorsey discussed the integration of Afterpay into Cash App, focusing on commerce and financial tools.
- Amrita Ahuja highlighted upcoming product launches, ROI-driven marketing strategies, and the leveraging of partner banks and Square Financial Services for banking services.
- The company discussed plans to grow the seller business, especially in the U.S. market, targeting restaurants and product enhancements.
In conclusion, Square's earnings call paints a picture of a company on the rise, with substantial growth in its Cash App segment and ambitious plans for the future. The integration of Afterpay and new product features are set to bolster the company's position in the competitive financial services market. Square's leadership is confident in their strategy to drive profitability and expand their seller business, both domestically and internationally. With a clear focus on product development, customer satisfaction, and operational efficiency, Square is poised to make significant strides in the coming year.
InvestingPro Insights
Square, Inc. (SQ) has shown a robust performance with significant year-over-year growth, and the InvestingPro data and tips highlight key aspects of its financial health and market position. With a market capitalization of $41.83 billion and a notable revenue growth of 22.61% in the last twelve months as of Q3 2023, Square continues to expand its market presence. Despite a negative P/E ratio of -145.73, reflecting challenges in profitability, the company has demonstrated a strong return over the last three months, with a 15.15% price total return, suggesting investor confidence in its growth trajectory.
InvestingPro Tips indicate that Square is expected to experience net income growth this year and is recognized as a prominent player in the Financial Services industry. The company's liquid assets surpassing short-term obligations is a positive sign of financial stability. However, it's important to note that Square did not pay dividends to shareholders, which may influence investment decisions for those seeking regular income.
For investors interested in a deeper analysis, there are additional InvestingPro Tips available that provide more insight into Square's market volatility, profitability predictions, and long-term returns. To explore these valuable insights, visit InvestingPro's dedicated page for Square at https://www.investing.com/pro/SQ. Moreover, by using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more expert financial analysis and tips. There are a total of 9 InvestingPro Tips listed for Square that could further inform your investment decisions.
Full transcript - Square Inc (NYSE:SQ) Q4 2023:
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 of -- during this call of Cash App's banking services referred 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 some of our gross 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 entirety is being audio webcast on our Investor Relations website. An audio replay of this call and the transcript for Jack and Amrita's opening remarks will be available on our website shortly. With that, I would like to turn it over to Jack.
Jack Dorsey: Thank you all for joining us. Last quarter, I focused on Shareholder Letter on how we're going to grow Square through four priorities. This quarter our letter is about Cash App strategy and our goal to become one of the top providers of banking services to households in the U.S. 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 Ahuja: 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 have seen, and ways we will 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 cohort saw strength 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 in discretionary spend. On a GAAP basis, operating loss of $131 million was impacted by a goodwill impairment of $132 million, severance 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 volumes, 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 volume. 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 point-of-sale solutions delivered strong growth, with gross profit from these products up 18% -- 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 for 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 going 20% compared to the prior year, more than twice as fast as overall monthly transacting actives. Monetization rate was 1.48%, up 9 basis points year-over-year and 5 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 with $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., UK, and Australia to shop by 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 payment 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 have 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 a year-over-year margin expansion of approximately 9 points on adjusted operating income and 7 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 billion to $2.02 billion in gross profit, or 17% growth at the midpoint. For Square, we expect gross profit and GPV to moderate slightly compared to the fourth quarter of 18% and 10%, respectively. So far this year weather has periodically impacted Square GPV in the U.S. and particularly in January where we saw it driving 3 to 4 point moderation in growth. And certain regions experienced impacts to in-person volumes particularly within food and drink, and retail. For Cash App, we expect growth to be driven by actives and inflows per active in the first quarter. We expect the gross profit growth rate to moderate compared to the fourth quarter's 25% and will be lapping tougher comparisons. Looking at profitability, we plan to deliver both quarter-over-quarter and year-over-year growth with adjusted operating income of $225 million to $245 million and adjusted EBITDA of $570 million to $590 million. The respective midpoints represent margin at 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.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of Tien-Tsin Huang from J.P. Morgan. Please go ahead.
Tien-Tsin Huang: Thank you. Thank you. So, you acted really quickly here on costs. So I want to ask how quickly you can just add growth in 2024. Really product velocity is the question here. In your letter, Jack, you talk about closing product gaps and 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 2024? Thanks.
Jack Dorsey: Yes, 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-off] (ph) coming this year. And when those platform elements unlock, it just kind of 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 -- Hello. We've been focused, we've been focused a lot of our -- we've been pulling this threat, 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 or base. So our strategy is to make sure that we are the best choice and the first choice for anyone looking who's making $100,000 or $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 in a lot of detail, I think we'll see very positive outcomes from that focus and it allows us to go to parts two and three of that strategy, which is on families and also becoming a Social Bank. Cash App is inherently social. We have this incredible network effects 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 in local commerce in particular, and that's where the intersection with Square comes into play. We're going to start putting our Square customers first and foremost in the Cash App and you really see the power of our combined ecosystems and the combined network.
Amrita Ahuja: And I'd just add, Tien-Tsin. Just, tie this together with our 2024 outlook. 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 known expense and growth levers that we've 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 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: Your next question comes from the line of Timothy Chiodo from UBS. Please go ahead.
Timothy Chiodo: Great. Thank you for taking the question. I wanted to dig in a little bit to the Square distribution approach. You've talked about building out the vertical outbound sales team 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 Dorsey: Yes. We're definitely open to this, we've tried this in the past -- in our first few years as a company. As many of you know, J.P. Morgan Chase was one of our earliest investors of Series B. And we had Square readers in every single branch in the United States. It wasn't that effective. I think the -- 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 the -- our go-to-market approach, but our product itself. It's where I want to put a lot of our focus. One of the things that we're doing soon is we're -- 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 when they get there, really it's a function of Apple (NASDAQ:AAPL)'s search results. So as to whether they find us or not, the app they need, especially for restaurant or retail or services organization. So what we're going to do is, we're going to go back to having one app, which just can be called Square. And we can easily say that 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 so proprietorship or all the way up to multi-location, multi-country. So that's the goal and will 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. 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 will 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 we'll -- we not only have an ecosystem that serves their entire business, but we have the equivalent of business banking income, just like this J.P. Morgan 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 under one stack with one app download is hugely unique and also hugely important to our sellers. So, I think it's -- I think it's going to be amazing.
Timothy Chiodo: Thank you, Jack.
Operator: Your next question comes from the line of Darrin Peller from Wolfe Research. Please go ahead.
Darrin 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 million 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 Dorsey: 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 within their full direct deposit of their pay check 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, that's the growth. That's how direct deposit grows. And people, again trust us more and more to put more of their pay check 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. So, expectations, we want to move as fast as possible. 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 is 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 being at the 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 desire we believe to put more of my money with Cash App and use it there, and hopefully more and more it becomes 100%.
Amrita Ahuja: And Darrin, 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 App ecosystem, where they can send, spend on Cash App Card or Cash App 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 proactive, that we're focused on driving forward as part of our bank-to-base strategy.
Darrin 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, and 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 atleast 15% gross profit growth against the backdrop of this tight cost management? And then what signals are you looking for in deciding whether to invest in OpEx more aggressively again? Thank you.
Amrita Ahuja: 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 those constraints are clarifying for us, actually in supporting further scoping, prioritization, and operational excellence in how our teams operate. But the key categories 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 will 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.
Mike Ng: Great. Thank you, Amrita.
Jack Dorsey: The two things -- 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 taken a -- 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 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.
Harshita Rawat: Good afternoon. I want to ask about Cash App and it's commerce. Cash App is growing rapidly, although from a small base. Can you give us some color on the composition of these volumes? For example, within Square merchants that are online. You've had some very interesting merchant acquirer partnerships to enable Cash App Pay recently as a payment option online. What are some of the most salient things you can do to kind of grow Cash App Pay penetration in e-com? And also just related to Cash App overall, can you also talk about your compliance investment of KYC at [indiscernible]? Thank you.
Amrita Ahuja: Yeah, I'll start off Harshita 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, and 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 you last June. Growth here has been driven through recent partnerships such as DoorDash (NASDAQ:DASH), Adient (NYSE:ADNT), and Stripe. We have a strong pipeline as well of large merchants. We're exploring to continue to extend 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? Do we answer your question, Harshita?
Harshita Rawat: Oh, yes. Yes, so just the compliance investment, just more broadly within Cash App, not just related to Cash App Pay, especially as we focus now more into banking.
Jack Dorsey: Sorry, compliance investment more broadly across the company?
Harshita Rawat: No, within Cash App, I was just kind of thinking about some recent media reports suggested regulatory [Multiple Speakers]
Jack Dorsey: Yeah, absolutely. So, compliance is a complaint, 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 areas that we've had in the past, 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 then we stay 10 steps ahead of any adversaries. And that's been a big focus for us for years. But we 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 App's direct deposit and utilize it, that -- it's sounds and they can do everything that they want without restriction, and that it just works. So this is a significant investment for us and we'll continue to grow. But we have entirely new technologies available to us now that makes this work even more efficient and much better. And we can be far more exhaustive and far more precise in our approach than we have ever in the past.
Harshita Rawat: That's helpful .
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 Dorsey: Yea, 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 yard between Square and Cash App. We realized last year that was incorrect. And now 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 that 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 is 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 Ahuja: And in terms of 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.
Operator: Your next question comes from the line of Bryan Bergin from TD Cowen. Please go ahead.
Bryan Bergin: Great. Thanks so much for taking the question. Do your broader banking aspirations require you to do anything different on the banking license side, or ask differently, should your efforts in the banking side be successful? Can you still leverage partner banks or do you need to go with direct licenses? Thanks.
Jack Dorsey: Yeah, 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 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. You can 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 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.
Bryan Bergin: Great. Thanks very much.
Operator: Your next question comes from the line of Ken Suchoski from Autonomous Research. Please go ahead.
Kenneth Suchoski: 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 and 2025? And if you can comment on how you're thinking about marketing spend in Square for the year, that would be great. Thanks so much.
Amrita Ahuja: Sure. Happy to kick off on what we've seen recently and what we expect moving forward. As 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 are able to attach more products to our customers as they are able to grow on our platform that extends the lifetime value of these customers and ultimately what we're able to invest 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, 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, one simple price for a set of customers across the restaurants vertical. We are doing a number of different things to drive cohesion in how a customer can onboard into the Square ecosystem. And as Jack mentioned earlier, some of 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 Dorsey: 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 going to bring -- 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'd be targeting -- 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.
Kenneth Suchoski: Great. Thanks, Jack. Thanks, Amrita.
Operator: Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead.
Bryan Keane: Hi, guys. Wanted to ask about the Cash App monetization rate. I think it was up 5 basis points sequentially. If I recall correctly, I think you thought it would be more stable sequentially. So, I guess, what kind of surprise 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 Ahuja: Sure. So what we saw in the fourth quarter was 9 basis point improvement year-over-year and 5 basis point quarter-over-quarter. To your question specifically on quarter-over-quarter, there are a couple of different factors at play, but the primary ones were around Bitcoin, and within Bitcoin, it was both the pricing of the product as well as the price appreciation of Bitcoin itself, which benefited monetization rate on a sequential basis. As we look forward, we see opportunities in 2024 around actives and inflows proactive 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 a meaningful change in monetization rate, and certainly not at the meaningful level that we saw during 2023.
Bryan Keane: Thank you.
Operator: Your next question comes from the line of Pete Christiansen from Citi. Please go ahead.
Peter Christiansen: Thank you. Good evening, and 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 Ahuja: Yeah. You know that the overall strategy is that as customers 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 a 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 driving gross profit and customers being more engaged with the broader set of products across Cash App. What we've seen so far, 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.
Peter Christiansen: Great. Thank you.
Operator: Your next question comes from the line of Jason Kupferberg from Bank of America. Please go ahead.
Jason Kupferberg: 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, the 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 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 Ahuja: Sure. Look financial services at 38% in 2023 as a percent of Cash App gross profit versus 29% 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, I'd orient you to the trend lines across EBITDA. Obviously, the free cash flow metric is a different calculation, but it directionally where we expect to grow our profitability on an EBITDA basis, we also would expect to grow our free cash flow over time.
Jason Kupferberg: Thanks.
Operator: Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead.
James Faucette: Thanks very much. Just wanted to ask a question on the seller business, it looks like the growth rate in 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 timeframe, 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 Jack has talked about. Thanks.
Jack Dorsey: James, it's a big [Multiple Speakers] 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 reorg, 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 Ahuja: Yeah, and I just add, you know in addition to our focus areas in the U.S., we can benefit from those product initiatives 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. with a long runway for growth. And we saw GPV 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 Bauch from Wells Fargo Securities. Please go ahead.
Andrew Bauch: 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 -- the 6 times 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 Dorsey: Hi. I think, the biggest unlocks are going to be product. And we want to make sure that it's super easy to get into Cash App and to see where 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 a significant utility. And that 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 like -- 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 Ahuja: And 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 now at 23 million monthly active, growing twice as fast as our overall monthly active base at over 40%. Attached is that, we're at true scale in terms of the ability to drive awareness here. We surpassed $1 billion 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 a growth in actives but also growth and spend per active, which means that we saw meaningful growth in overall spend on Cash App Card in 2023. And finally, point you to that strong engagement where our 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 is a key thing -- the 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 Bauch: 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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