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Q1 2021 Earnings Call

Question :

Thank you so much. Really impressive acceleration here. I wanted to ask if there's a way to maybe unpack that acceleration. I know reopenings probably played a role, stimulus probably played a role and maybe you're seeing some early returns on your stepped-up investments, Amrita, like you just mentioned there.

So is it possible to maybe unpack it that way? And I think it might help us think about the go forward as well. Thanks.



Answer :
With reopenings, I think you can see that most clearly in the stellar retention figures that we called out, we've been really encouraged here with the improvements that we've seen in recent months. When you look at GPV retention, existing cohorts of sellers have rebounded to around pre-pandemic levels. We're looking at that sort of two-year retention trend to normalize for the impact of COVID looking from '19 to '21. And in March and April of this year, GPV from our existing cohorts was nearly back to their 2019 levels.

Remember, this is a notable improvement from last year when the world was sort of discombobulated and our GPV retention was down about 40%. It improved to down 10% in the back half of last year, and we're now seeing back to very close to where they were in 2019, and on a gross-profit basis, actually seeing positive retention for the first time since the fourth quarter of 2019. So what we are seeing there, again, is very much due to both strength in reopenings, as well as strength in the new cohorts that we're bringing on. Our most recent cohorts from 2019 and '18 are showing better retention compared to older cohorts, we think, partly attributable to the greater mix of larger and more omnichannel sellers.

And in fact, to your point about investments in Q1, our newly acquired 2020 cohorts continue to show strong gross profit contributions, pacing ahead of prior cohorts on a dollar basis, contributing the most gross profit of -- among any annual cohort in Q1. We think that's a strong early indicator for healthy retention in this cohort. From a stimulus perspective, you can certainly see that play out with respect to the inflows dynamic that we talked about in cash app, where we saw 55% inflows step up month over month from February to March. With a smaller step-down in April, 16% step-down, still at an elevated level but beginning to normalize as we see those stimulus funds run through our customers' account.

And then, from an investment perspective, again, some of the investments that we've made into our business, we see playing out now in Q1, where in our seller business, our new cohort of customers in Q1 plus strong growth on a year-over-year basis, trending to the similar payback we've seen historically in last year around five quarters. And with cash app, the investments that we're making here are a combination of bringing customers in, as well as engaging our current customers. And those engagement trends, as we called out earlier, are very strong within the cash app ecosystem, our strongest level of transactions per month at 18 times per customer in the quarter, up 40% on a per-customer basis, is really an indication of the investments that we make to make our customers aware of the broader product ecosystem. And it's because of these early returns that we want to continue to lean in on the investments throughout the remainder of the year.

Question :

Good afternoon. So this quarter, you highlighted the integration of Square Loyalty into cash app, which is one of the first explicit connections between the two ecosystems, I think, you've made. Can you just talk a bit about what other types of integration you're looking at making between the two ecosystems and how you're thinking about the goals there, meaning focused on user growth, engagement growth, more monetization, improving underlying funding mix? Any additional color there would be helpful. Thank you.




Answer :

Yes, thanks for the question. So we think one of our superpowers is the fact that not only do we have an ecosystem on the seller side that serves multiple verticals at once but we also have the buyer side in cash app. And our goal over time is to realize more of these connections. There's a lot of connections that you probably don't hear of, which are all internal.

everything that we build on the seller side, we can utilize internally on the cash app side and vice versa. And that's allowed us to move much faster with both ecosystems because fundamentally, we have shared infrastructure. we have the external side, and we also have the external customer-facing connections, loyalty -- Square Loyalty and cash app is a great example of that. We -- as you look at our ecosystem, as you look at how cash card is used, as you look at boost, you can imagine many other connections around that.

We think Square Loyalty and cash app is a really big one because we have so many customers visiting Square Sellers, utilizing the loyalty programs and then integrating them into the cash app and making sure that people understand that we have cash app to offer. This allows us to build on those network effects that we develop in cash app itself. So ultimately, we're looking for the right connections that make sense from a customer perspective. And as we see more and more cash card uses at Square Sellers and we want to drive more, we have a lot of that control.

And just have to make decisions around it as we learn what's best and what's most critical. So we're gonna continue to look for opportunities here. There's a ton. And as we add a new ecosystem in TIDAL, you can imagine even more connections between all three ecosystems because what makes that acquisition so compelling for us.

So this is a big part of our thesis around building these ecosystems in the first place. We'd be good with just one but having multiple that can actually interconnect all under the same purpose is quite powerful and I think very, very unique.


Question :

I'm Kamala Allison, owner of Fybr in Santa Cruz, California. We use a number of Square products to help run our brick-and-mortar and online shops. And my question is, as a small mom-and-pop retailer, my business has benefited greatly from a variety of Square solutions, including Square Register and Square Online.

And as Square continues to position itself as a champion for small businesses, I'm wondering what the company's vision is for helping businesses like mine move up market and compete against larger retailers.

Answer :

Yes. Great question, and thank you for trusting us and using us. I guess, this is exactly the reason we started. We found so many small sellers, micro-sellers, people who are considering opening a business in the first place.

What they lacked were simple tools. We started with the simplest tool, is just enabling people to accept credit cards in the first place, which 12 years ago was not easy as a small business. And as payments with more and more deposits, it became really critical not just to accept credit cards but actually to not miss a sale. So our goal here is to build a system that scales with the business.

We don't want to be upper bounds on your business. And I think one of the proof points in this is we do have larger sellers. We do have larger retailers using Square. And a lot of those have actually grown with us.

They didn't start large. They've grown as they've used us and as we've learned from them on how to make the tools better. So there's everything that we do in our tools is meant to scale to whatever your ambition is. And some, it's smaller, some might be much larger multi-location, multi-country, we can handle all of that.

Square Capital is a big part of this. We look deeply at what a small business needs, and we didn't give them too much and certainly didn't give them less than what they needed and doing a transparent and fair way was really important and making it easier, especially during last year when PPP came out. We have more than 80,000 sellers access $1.4 billion in PPP funding. So every tool we make is designed in order to help a seller make more sales and compete on a level playing field.

And wherever you feel we are missing or we have a gap, please let us know and we'll move to fix it very fast. But we're definitely here for businesses like yours and helping you grow if that's your ambition.







Question :

Thanks, guys. Great job through all this. But if we just look into the seller growth, especially as we pretty much have this growth from cash app being a big driver of last year, it looks like seller just on easier comps. But more importantly, the underlying growth trends we're seeing in some of your newer or more growthier areas picking up steam like international.

And then, when we look even beyond international at e-comm and omni and what that could be for you guys going forward beyond pandemic, can you just touch on the trends you're seeing in both those areas, and then how those play into the growth profile of this business, maybe even later this year and into next year and beyond?

Answer :

Yeah, hey, Darrin, thanks for the question. So I'll lead off here with a couple of key points that can help orient you on how we're doing and what we're seeing so far and some of the key drivers of growth that you called out between international, omnichannel and e-commerce and growth with some of the mid-market sellers where we are seeing real traction. With international, some of what we're seeing, particularly in the past few months and through the first quarter, is really encouraging. And that's coming on the back of closing the product parity gap that we've had between those international markets and the U.S.

And what that's leading to now is outsized growth with gross profit in the first quarter up nearly 80% year over year, now about 8% in seller gross profit in total. Even with the pace of periodic lockdowns in certain markets in Q1, that growth was driven by continued mix of the acquisition of mid-market sellers, as well as broader recovery in in-person activity toward the end of the quarter with reopenings, and we've seen that continue into April. And again, some of the key markets that we see there between Australia and U.K., in particular, where we've seen really strong growth, as well as stepped-up investments. And we're now seeing the investments that we make in go to market in these international markets trending relatively in line with the payback, the very efficient payback that we see in the U.S.

now. I think a lot of that again comes back to having a greater product set and greater product parity in the international markets now more than ever, and we'll continue to scale those across software, the financial services offerings and our sales and marketing spend. That's why we want to lean in. From an omnichannel perspective as well, we've continued to see growth even with the return to positive growth on card-present volumes in the first quarter.

We continue to see these omnichannel volumes, the online volumes and card-not-present with online volume growth at over 50% again in the first quarter, consistent with the average growth over the past couple of years. We see the increased importance here of our ability to address -- enable our sellers to address their buyers through multiple channels. And then, from a mid-market perspective, we're also continuing to see this traction that we think will continue to be a source of growth for us. In this quarter, the growth from that 30% of our seller GPV that comes from mid-market, those sellers were growing at more than two times the rate of the overall seller business.

They grew 43% in the first quarter. And that's why we want to continue to lean in across the investments we're making in product, where that's where you see the vertical software and the developer platform really address the more complex needs that larger sellers have, as well as the investments we are making in marketing and sales. Intention is to double the sales team this year to increase our outbound outreach to reach even more larger sellers and to continue our investments in marketing across awareness, marketing and product-specific campaigns that we know are targeted to larger sellers.




Question :

\I'd like to dig into the cash app inflows topic. You were talking about that a little bit during the prepared remarks. Specifically payroll direct deposit, clearly one of the more important drivers there.

Maybe you could talk about some of the tactics you've been taking to increase that penetration. But of course, it goes beyond that. There are many other ways to drive inflows, whether it be debit cards, bank transfer, peer-to-peer trading, Maybe you could talk a little bit about those as well and how they're helping to drive those inflows.







Answer :

Yes. I'll kick us off. So direct deposit remains a top priority for the cash app team this year, and we've seen pretty meaningful traction in deposits during tax refund season. So a lot of our work recently has been making direct deposit much more visible and the experience more frictionless as we work on it so we can help with those inflows.

One of our top priorities in 2021 is making sure our foundation can serve all the use cases in the ecosystem. So we're investing a lot in the infrastructure, automation support, compliance to allow greater funds into our ecosystem. This is a really big one and allowing customers put their money into cash app in new ways. Several funding methods which cash app doesn't offer to customers today, and we're gonna continue to evaluate.

Credit Karma was also a big mix in this as we get to focus on those inflows from a tax perspective as well.

Yes !! That makes a lot of sense on the Credit Karma point. A quick follow-up, which is very related to this, given the strengthening




Question :

I was just -- it was a quick follow-up there. So Jack, you were mentioning about the progress in payroll direct deposit and all the many other ways to have inflows come into the cash app ecosystem. The brief follow-up was just that, is it fair to assume that, given all of the strength in those inflows that the cash app marketing spend for this year could be a little bit more heavily skewed toward discretionary or what we call offensive customer acquisition spend relative to the nondiscretionary funding and some of the other portions of the cost?

Answer :

Thanks, Tim, just to pick up on your question since I know it kind of got cut off before, I wanted to also lean in on your prior question, which was around direct deposit and putting that in context of inflows. With direct deposit, we've seen encouraging recent progress, as Jack was speaking through, with March being our highest number of overall direct deposit actives and our first-time actives growth driven by government fund inflows, paycheck deposits and tax refunds. Although we do believe that they're still very early in this ramp, and we've clearly benefited from government disbursements in the month of March. We -- as you noted, it does give us an opportunity as we see these higher inflows, whether they're from direct deposit customers or from other inflow sources, which by the way, were much higher, six times higher than direct deposit sources in the month of March.

As we see those elevated levels of inflows and as we see more engaged customers, we generally see higher product adoption, engagement and lifetime value. And that then unlocks the opportunity for us to invest in the business in more deliberate ways, to the second part of your question. And so we do see an opportunity here to continue to lean in to the growth and step up that we see in the cash app business overall. But I do want to just make sure that we clarify on inflows that there multiple ways to inflow money into cash app, right? You have peer-to-peer transfer, you have cash from your bank account added automatically or onetime at a time or through direct deposit.

And it's through the broader growth of inflows that we see an opportunity to continue to invest and see higher ARPUs over time.

Question :

Thank you for taking my question. I want to ask about crypto. You've been involved in bitcoin from very early on.

We are now seeing -- they are suggesting a majority of millennials and now interested in crypto significantly more versus a year ago. Are you looking to expand into crypto beyond bitcoin buy and sell? And on a somewhat related note, what do you also think about CBDC's and Square's potential goal to play there? Thank you.

Answer :

So just a reminder on some context on why bitcoin and why we believe this is the right path for us. We see bitcoin as the Internet's potential to have a native currency. And we want to further that as much as we can. And a lot of our work really lines up to that.

We started with buying and selling of bitcoin in cash app, but what we've done since, including open source development via Square Crypto, COPA, which is open source foundation for crypto patents to protect the community. And a lot of our related work around government lobbying as well CTI is all around making sure that the Internet can realize a native currency because it is so fundamental to businesses on the Internet and so fundamental to our business generally. So our focus, first and foremost, is on enabling, and this is going to be a long-term focus, on enabling bitcoin to be net currency. It removes a bunch of friction for our business, and we believe fully that it creates more opportunities for economic empowerment around the world.

And you should see more of activity from us over the year toward this goal. So we do think that bitcoin is the important one to focus on, and it's what we are focused on.

And I would add, Harshita, when you look at some of the product innovations that we have for our cash app customers with respect to bitcoin, there are things that we can uniquely do that we think really differentiates for us. It's the intersection of multiple products with each other. Whether it was the bitcoin boost that you saw last quarter or it's now peer-to-peer bitcoin, where you have the ability to -- friends can send each other bitcoin all through cash app very seamlessly. These are things that cash app can uniquely do to serve our customers.

And we think that's part of the reason that we've been able to drive awareness more broadly with bitcoin with our strongest acquisition of new bitcoin actives in the first quarter and growth in volumes per customer, which we also saw in the first quarter. Those are the compounding benefits that get us to the growth that we've seen here now with $75 million in gross profit in the first quarter, up 11 times year over year.

Question :

Good evening. Nice acceleration. Jack, I'm hoping we could dig a little bit more into Square's investment rationale for acquiring TIDAL.

How should investors think about, I guess, synergy realization with the brand? And how do you envision what the early integration efforts might look like with Square's existing ecosystems? Thank you.

Answer :

Yeah, great question. And I know a bunch of you out there had questions around this. We're super excited about this work because we get to broaden how we build our tools for an entirely new set of audience, and that said, is artists and musicians. If you look at the space, obviously, there's a ton of competition in streaming but there's not a really great effort around artist tools.

Hence, what -- the thesis we had going into this deal was that we want to make sure that like everything that we learn from helping a seller with very simple tools in order to participate in the economy, we can bring to an artist because we saw a ton of parallels between what a new emerging artist has to go through, the long tail of artists and what a small business has to go through. They're very similar. And we're going to start with the most critical needs, and we have a good 100-day road map and you all should be seeing some updates within those 100 days. We're going to focus on those simple critical artist tools in a way that we know and really provide a platform for artists to turn to first when they want to release their work.

And we are focused on the more emergent. We are focused on the more long tail because that is the pattern and the flow that has worked for us with the seller base. But as you see in our business, we have handled some of the largest sellers in the world, and we expect to be able to provide the same sort of tools and experiences for the largest artists in the world as well. And fortunately, we have some of the largest artists in the world within this deal and also on our board, who have been through the entire industry, understands what an artist needs, understand what the new emergent artists needs and how to really build a service that they love and really is giving back to them and to their career.

So that was the thesis behind the deal. We are gonna move super fast and we're really excited about doing the work. And I imagine with some of the releases that we will be putting out over the next year, that you will see the same parallels that we see.