Addressed a news report regarding investigations, clarifying that it pertains to an existing DOJ inquiry previously disclosed.
Highlighted proactive reviews and voluntary reporting to the Office of Foreign Assets Control (OFAC), resulting in a No Action Letter from OFAC.
Emphasized robust controls to prevent terrorist financing via Bitcoin, including real-time transaction screening and strict withdrawal limits.
Underlined a culture of compliance and continuous improvement in compliance programs.
Financial Performance and Outlook
Reported Q1 gross profit of $2.09 billion, up 22% year-over-year, with adjusted EBITDA of $705 million and adjusted operating income of $364 million.
Cash App’s gross profit was $1.26 billion, up 25% year-over-year, and Square’s gross profit was $820 million, up 19% year-over-year.
Noted discipline in expense management, staying below the 12,000-person cap, and achieving leverage on corporate overhead expenses.
Adjusted free cash flow for the 12 months ending in March was $1.1 billion, representing a 50% conversion rate of adjusted EBITDA.
Raised full-year 2024 guidance for gross profit and profitability based on Q1 performance and increased expectations for the rest of the year.
Gross profit expectation for 2024 is at least $8.78 billion, or 17% growth year-over-year.
Cash App’s gross profit growth expected to moderate slightly from Q1’s 25%, with Square’s gross profit growth also expected to moderate.
Initiatives to improve product velocity include testing and rolling out Afterpay on Cash App Card and completing orders migration for Square.
Updated 2024 profitability guidance to at least $1.3 billion in adjusted operating income, or 15% margins on gross profit.
The updated guidance implies a Rule of 32 for full year 2024, aiming towards a Rule of 40 in 2026.
Question and Answer
Product Development Velocity and Focus Areas
Question
Can you provide an update on the progress of improving product development velocity at Block, particularly in terms of launching and enhancing products, and whether the focus is on entering new categories or incremental improvements?
Answer
Block is focusing on two main aspects to improve development velocity: strengthening engineering and design disciplines and scoping to prioritize the most important projects.
On the Square side, the current priorities are reliability (ensuring uptime for sellers) and the local/food and beverage focus, with initiatives like the single app and streamlined onboarding process.
While there are new products in the pipeline, much of the work is focused on achieving parity with competitors and expanding features to a larger user base, such as Afterpay on the Cash Card.
Cash App Direct Deposit and Growth Drivers
Question
Can you discuss the growth trajectory of Cash App direct deposit net adds and whether the addition of newer features like Billpay or Afterpay integration on the Cash Card could further accelerate this growth?
Answer
Cash App’s top strategic priority is banking the base, which involves bringing more financial services to its 57 million monthly active users.
The focus is on driving higher direct deposit adoption and building long-term relationships with customers through product enhancements and effective go-to-market strategies.
The company plans to bundle and package its financial services offerings to make them more discoverable and appealing to customers, similar to the successful strategies used for Cash App Card and Cash App Borrow.
EBITDA Efficiency Drivers and Future Outlook
Question
Can you elaborate on the factors contributing to the significant EBITDA improvement and provide insights into the efficiency measures and opportunities for further progress in the model?
Answer
The first quarter saw record-high profitability metrics, with EBITDA nearly doubling year-over-year, driven by strong growth and disciplined expense management.
Key efficiency drivers include personnel cap discipline, leverage across corporate overhead areas, and ongoing focus on improving structural costs.
The company expects to maintain discipline and efficiency throughout the year while benefiting from strong incremental margins and investing in growth initiatives, particularly in sales and marketing.
Gross Profit Growth Assumptions and Borrow Performance
Question
Can you provide more details on the drivers and quarterly cadence of the 17% gross profit growth and the assumptions for Cash App and Square, as well as discuss the sustainability of the Borrow and Square Loans revenue stream given the evolving credit environment?
Answer
The full-year gross profit guidance has been raised to at least $8.78 billion, reflecting outperformance in the first quarter and improved expectations for the remainder of the year, with Cash App expected to grow slightly faster than Square.
The company anticipates mid-teens gross profit growth for the Block in the second half of the year, with the impact of structural cost improvements and pricing changes largely behind and key growth initiatives like Afterpay on the Cash Card and orders migration benefiting 2025 rather than 2024.
Borrow has shown strong growth, with originations more than doubling year-over-year while maintaining responsible scaling and loss rates in line with historical trends.
The product’s positive unit economics and ecosystem benefits, including increased Cash App inflows and strong conversion and repeat usage rates, support the company’s confidence in continuing to grow this revenue stream.
Afterpay Integration with Cash App Card and Cash App Pay
Question
Can you elaborate on the integration of Afterpay with the Cash App Card, including the potential size of the opportunity and any preliminary details on the product’s functionality or other upcoming integrations?
Answer
The company is excited about the integration of Afterpay with the Cash App Card, which brings together the Cash App and Square merchant networks, creating a larger ecosystem for both consumers and merchants.
The integration is currently being tested, and the product’s final form will be based on user feedback and usage patterns.
The opportunity is significant, with an existing audience of 24 million monthly actives on Cash App Card, and the integration is expected to drive engagement and benefit both consumers and merchant partners.
The growth of Cash App Pay, which has been driven by the Afterpay team’s enterprise sales capabilities, further demonstrates the benefits of the integration and the potential for future growth.
Square Seller GPV Dynamics and Growth Drivers
Question
Can you explain the dynamics behind the card-not-present and retail GPV growth rates lagging overall GPV growth, and discuss the potential for GPV growth acceleration in the second half, including the role of go-to-market changes versus favorable comps?
Answer
The company expects the potential GPV growth acceleration in the second half of the year to be primarily comp-driven, with more favorable comparisons.
While Square GPV growth was in line with expectations in the first quarter, the company is not satisfied with the growth rates and is focused on improving product velocity and go-to-market strategies to drive growth in 2025.
Specific initiatives that are expected to contribute to improved growth trends include orders migration, onboarding flow improvements, and the use of contracts to reach sellers with more complex needs.
Value Proposition of Contracts and Franchise Capabilities
Question
Can you elaborate on the value proposition of contracts and how they unlock opportunities for Square, and discuss how this aligns with the expanded franchise capabilities and the potential to win in areas where the company historically faced challenges?
Answer
Contracts represent a new approach for Square, offering predictability of costs and free hardware to merchants while avoiding the predatory practices observed in some competitors’ contract models.
The company is focused on experimentation and a faster feedback loop to identify and invest in successful go-to-market strategies, including field sales, contracts, and verticalization of the sales force.
In the franchise capabilities area, the focus is on achieving parity with competitors in food and beverage features and then showcasing the depth and breadth of the ecosystem, particularly the banking offerings, to set Square apart.
Factors Driving Square Gross Profit Growth
Question
Can you provide more details on the specific drivers of the better-than-expected gross profit growth in the Square segment, particularly within software, banking, and international, and discuss the sources of upside surprise?
Answer
The key driver of the delta between gross profit and GPV growth in the Square segment was the strong performance of the banking products, with 36% year-over-year gross profit growth driven by healthy repayment trends, strong organic volume growth, and contributions from Square Loans and Instant Transfer.
The company also saw growth in gross profit from banking products in international markets, with new launches like loans in Japan exceeding expectations due to the differentiated product experience.
Additionally, vertical points of sale across retail, restaurants, and appointments showed strong growth, with gross profit from these products increasing by 24% year-over-year in the first quarter.
Tax Initiative and Direct Deposit Overlap
Question
Can you discuss the potential overlap between the 40% of tax actives who receive positive refunds into Cash App and existing payroll direct deposit actives, and elaborate on the strategy for converting these customers who may not currently overlap? Additionally, can you provide insights into inflows growth excluding the impact of tax refund growth?
Answer
The tax initiative is primarily a discovery effort to bring visibility to Cash App’s direct deposit capabilities and broader financial services offerings, including paycheck direct deposits.
While the company saw growth in the broader base of direct deposits in the first quarter, the tax piece is specifically aimed at driving awareness and conversion among tax direct deposit customers.
The company is focused on leveraging key product initiatives and bundling financial services offerings to convert more customers into paycheck direct deposit users.
Impact of Merchant Settlement on Square
Question
Can you discuss the potential impact of the recent merchant settlement with Visa and Mastercard on surcharging and interchange cuts on Square and its merchants?
Answer
The company has not spent much time on this particular issue and does not have surcharge ability on Square in most markets, except in Australia.
GPV Growth and Seller GP Growth Relationship
Question
Can you provide insights into the sustainability of the 1,000 basis point difference between GPV growth and seller GP growth in Square, and discuss the expected relationship between these metrics throughout the remainder of the year?
Answer
The company expects the gap between gross profit growth and GPV growth to narrow as GPV growth stabilizes or improves in the second half of the year due to more favorable comps.
Gross profit growth is expected to moderate from the first quarter’s 19% as the company laps the stronger banking performance and pricing changes from the prior year, but key initiatives in the Square segment are expected to drive improved growth trends in 2025.
Afterpay’s Growth Drivers and Strategy
Question
Can you discuss the factors contributing to Afterpay’s improved growth, particularly the drivers of the higher gross profit growth compared to GMV growth, and the outlook for the product?
Answer
Afterpay’s growth was driven by strong customer acquisition across consumers and merchants, with growth in single-use payments and gift cards offerings.
The company’s enterprise sales team has been instrumental in driving new merchant growth across all Afterpay products, including the core Buy Now, Pay Later offering and newer, higher-monetization-rate products.
The improved growth and performance of Afterpay is attributed to a reset in strategy and reorganization, with Afterpay now fully embedded in the Cash App ecosystem and operating at a high level of excellence.
The company is excited about the potential of both stand-alone Afterpay initiatives and deeper integrations with Cash App Card and Cash App Pay, which have contributed to the latter’s strong growth.
