Good day, ladies and gentlemen, and welcome to the Square Third Quarter 2019 Earnings Conference Call. I would now like to turn the call over to your host, Jason Lee, Head of Investor Relations. Please go ahead.
Hi, everyone. Thanks for joining our Q3 2019 earnings call. We have Jack and Amrita with us today. First, we want to remind everyone of the format of our earnings call. We have published a shorter letter on our Investor Relations website, which was available shortly after the market closed.
We will begin this call with some short remarks before opening the call directly to your questions. During Q and A, we will take questions from our sellers in addition to questions from conference call participants. On November 1, we filed a press release and 8 ks announcing that completed the sale of Caviar, our food ordering platform to DoorDash on October 31. Today, in addition to our show letter, we have filed an 8 ks that includes Caviar financial statements for the Q3 of 2019 and the preceding 6 quarters, which I encourage you all to read. We would also like to remind everyone that we will be making forward looking statements on this call.
Actual results could differ materially from those contemplated by our forward looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also note that the forward looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward looking statements except as required by law.
Also, during this call, we will discuss certain non GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. These non GAAP measures are not intended to be a substitute for our GAAP results. Additionally, as discussed in the shareholder letter, we will be discontinuing the use of adjusted revenue beginning next quarter following receipt of a comment letter from and discussions with the SEC. As background, we introduced adjusted revenue in November 2015 as a supplemental non GAAP metric for investors to measure our business performance and growth and provide greater comparability to other payment solution providers.
Additionally, management uses adjusted revenue internally to measure the performance of our business. Going forward, our statement of operations will continue to disclose total net revenue, transaction based costs and Bitcoin costs determined in accordance with GAAP, which are the key components of adjusted revenue. We are also introducing new guidance measures this quarter on GAAP gross profit as well as the sum of transaction based costs and Bitcoin costs. We have posted a FAQ document on our Investor Relations website with further details on this reporting change
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well as a spreadsheet with our historical financials. There are no changes to any other GAAP or non GAAP metrics. Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call will be available on our website shortly. With that, I'd like to turn it over to Jack.
Good afternoon, everyone, and thanks for joining us. A few comments before I pass it to Amrita, and we answer your questions. What makes Square unique is our focus on building a robust ecosystem. An ecosystem to us is a set of tools which solve critical problems for folks in remarkable ways and more importantly reinforce one another. For instance, a seller might come to Square because we are the fastest and most elegant way to manage their payments in store.
And through that one move, they find a broader set of tools such as capital to get a quick loan, a website builder to sell online, the most advanced register to put on their countertop and payroll to pay their employees instantly via Cash App. Likewise, an individual comes into Cash App because they receive some money from their friend or a new employer. Not only do they find the fastest way to send and receive money, but also a free Visa card they can use everywhere for purchases, an instant rewards program called Boost, a way to invest their money in the stock market or even Bitcoin, and a way to quickly pay a yoga teacher or dog walker. Having one of these ecosystems at scale is incredible, but having 2 that can interact with and strengthen each other is profound. With the sale of Caviar to DoorDash Complete, we've taken the opportunity to look deeply at how to best guide these forward.
With the seller ecosystem, we've built and shown a long term profitable business, one that has an expected adjusted EBITDA margin of nearly 30% for full year 2019. Compare this to a margin of negative 9% in 2015 at the time of our IPO. Given the efficient payback periods and ROI for the tools in this ecosystem, we've decided to significantly grow our sales and marketing efforts this year and into 2020. Our first investments will be focused on bringing more awareness to all the software tools we make available to sellers to run their entire business in addition to managing their payments. And we will continue to prioritize investments to grow our seller network beyond our expectations.
Cash has been another incredible story. Excluding Bitcoin, Cash App revenue was $159,000,000 in Q3, up 115% year over year. Like Seller, Cash App also has a broad portfolio of tools that reinforce each other. And this quarter, we successfully redesigned the app to make all of them much easier to find and use. Adding to Send, Store and Spend, we introduced a new capability this quarter, investing, and did so in a way we believe is transformational.
Today on the Cash App, you can purchase stocks instantly for free when the market is open or scheduled when it's closed. We wanted to solve a much bigger problem we saw. Most people can't even afford to buy one share of a company they want to own. So we took everything we learned from Bitcoin and rationalized the stock market. Now someone who believes in Berkshire Hathaway A, currently trading above 300,000 and by $42 or even $1 worth of the company and hold or sell it at any point.
Others will offer this ability eventually, but none will match our ease or the fact that this one app serves most of the needs your bank did in the past. For many of the folks we serve, Cash App is the 1st introduction to financial services. And for many more in the mainstream, it's the best replacement for a number of apps they had to otherwise cobble together to make work. Finally, we've shown what a thoughtful and deliberate approach has paid off. We started this company over 10 years ago with the hopes of solving only one critical need sellers had.
We saw the opportunity to build a rich ecosystem around that to serve multiple needs and ended up building 2 of those ecosystems. I'm really proud of how far we've come and given everything we've proven to ourselves and all the positive signals in our business, I'm really excited to accelerate our investments to grow these ecosystems together. Each of these businesses have massive potential when taken alone, but the magic really lies in how they will work together. This is a fundamentally new idea, and our entire focus now is on being the greatest and most inclusive financial ecosystem to serve all needs. And with that, I'll turn it over to Amrita.
Thanks, Jack. There are 4 key highlights that I want to share today. First, we continue to drive strong revenue growth in the Q3 and recently completed the sale of Caviar. 2nd, given sellers' strong profitability profile and attractive returns, we are increasing our investments in go to market and also aligning our team's efforts to prioritize the highest return product opportunities in 2020. 3rd, as the Cash App service has scaled over the past 3 years, it has built a strong business model with compelling cohort economics that have improved the ecosystems margins each of the last 3 years.
4th, we are raising our guidance for our business ex Caviar in 2019 and providing a preliminary outlook on growth and profitability in 2020. First, our strong revenue growth. In the Q3, total net revenue grew 44% year over year to $1,270,000,000 Adjusted revenue grew 40% year over year to $602,000,000 and gross profit grew 42% to $500,000,000 We saw continued strength from the seller and cash businesses offsetting underperformance from Caviar in the quarter. We also had a sizable EBITDA beat in the quarter, driven by our core business performance as well as the timing of certain expenses. We completed the transaction to sell Caviar to DoorDash on October 31.
Caviar is included in our reported financials for the entire Q3 and will be included in part of the Q4. Excluding Caviar from the 1st 3 quarters of 2019, we would have seen our year over year growth for total net revenue and adjusted revenue increased by 1 point and 2 points respectively. 2nd, given sellers' strong profitability, we are capturing the opportunity to invest at compelling returns and orienting the team to address the highest return product opportunities in 2020. In the Q3 of 2019, our seller ecosystem generated $918,000,000 of total net revenue $364,000,000 of gross profit, which increased 27% 26% year over year respectively. As we're investing more in go to market, we're seeing good early results and I wanted to call out a couple of examples.
First, our marketing campaigns this year have driven an uplift across key indicators including awareness, web traffic and revenue contribution from new seller cohorts. 2nd, reducing the pricing on our newer hardware devices Square Register and Square Terminal has resulted in an uplift in unit sales, which is bringing new sellers into our ecosystem. From a product perspective, as we think ahead to the work we have to do in 2020, we are aligning our seller teams to our key priorities of omnichannel, global and financial services. We have recently decided to pull back resources on the marketplace product that supports Eventbrite's core online processing volumes in 2020. We are exploring other opportunities to partner with Eventbrite, although we don't expect these to be meaningful to GPZ in the near term.
While the originally contemplated Eventbrite deal would have contributed to GPV, the impact to revenue would have been de minimis. Given this, we have decided to double down on the higher potential return opportunities in our core focus areas to strengthen our platform and our ability to address multiple customers who contribute to meaningful revenue growth. 3rd, Cash App has a strong business model with compelling cohort economics. As with the seller business, it starts with efficient customer acquisition. For Cash App, this comes through peer to peer network effects.
Next, like seller, Cash App retains the majority of our active customers through our strong product appeal. We then cross sell our new products and features across our base to drive more money movements and higher average revenue per customer, which our new tabs redesign will help us do more effectively. All of this leads to Cash having achieved positive revenue retention for each of its monthly customer cohorts since 2015. Said differently, if Cash App did not acquire another new customer, revenues would still grow from the existing base. Low customer acquisition costs combined with positive revenue retention drive compelling cohort and payback economics, dynamics that are very similar to what we have seen in the seller business.
This has provided a strong foundation for rapid and efficient growth while expanding margins as Cash App is scaled. We expect dynamics to continue to improve as we scale our customer base and launch new products like investing. 4th, we are raising the guidance for our business ex Caviar in 2019 and providing our initial outlook for revenue and profitability in 2020. As a reminder, as Jason noted, starting next quarter, we will no longer be reporting or guiding to adjusted revenue. We provide certain adjusted revenue measures this quarter only as a transitional bridge.
You can find additional information on this change in our shareholder letter and on our Investor Relations website. There are two factors impacting our updated full year 2019 guidance of 2 point $24,000,000,000 to $2,250,000,000 in adjusted revenue. 1st, underlying trends in our seller and Cash App ecosystems increased the top end of our guidance by $15,000,000 2nd, the timing of the Caviar sale and its underperformance reduced our guidance by $45,000,000 These offsetting factors result in a net decrease of $30,000,000 to the top end of our full year 2019 guidance. Though again, what we are managing going forward is a core business with strong momentum heading into the 4th quarter. We are maintaining our guidance for 60% adjusted EBITDA growth in 2019.
We plan to reinvest Q3 outperformance given the returns we see and the opportunity to drive future growth. Turning to 2020. Based on our preliminary outlook, we expect to achieve year over year gross profit and adjusted revenue growth in the low 30% range on a pro form a basis excluding Caviar. In 2020, we expect adjusted EBITDA margins to be roughly flat compared to the 18% adjusted EBITDA margins implied by our updated 2019 guidance. We expect to reinvest the entirety of the two points of EBITDA margin unlocked by the sale of Caviar.
A key investment area in 2020 includes sales and marketing spend into the seller ecosystem. We expect to invest over 75,000,000 in incremental seller sales and marketing over 2019 levels, targeting payback periods to remain within 4 quarters. Additionally, 2020 guidance includes a larger than normal office expansion related to our Oakland office as well as additional regional expansion, which will add an incremental one time step up of $50,000,000 of operating expenses. Finally, we plan to host an Investor Day in mid March. Since our last Investor Day in 2017, we have more than doubled our revenues and gross profit scale, tripled our EBITDA and scaled 2 unique ecosystems for sellers and individuals.
In our 2020 Investor Day, we will provide a deeper update into our long term vision, our market opportunity, strategy and business model for the seller and cash ecosystems and our long term financial model. We'll provide more information on Investor Day in the coming months. I'll now turn it back to the operator to start the Q and A portion of the call.
And your first question comes from the line of Tien tsin Huang from JPMorgan. Your line is open. Again, your first question comes from the line of Tien tsin Huang. Your line is open.
Hi, I hope you can hear me. Sorry about that. Thanks for all the disclosure, a lot to digest. On 2020, I'll ask there, just can you give us an idea on the growth between the 2 ecosystems, seller and cash? And I'm curious if you can give us some idea here, thanks for the EBITDA margin disclosure on seller, how quickly you can scale the Cash App margins and can that ultimately approach the margins you're seeing on seller that is Cash App versus seller?
Thank you.
Thanks for the question, Tien Tsin. So I'll start off on the growth for 2020 between Seller and Cash. As noted in the prepared remarks, we're expecting low 30% gross profit growth, which is similar to what we would have expected for adjusted revenue. Two things to keep in mind there. First, our exit rate from 2019.
In the Q4, adjusted revenue and gross profit guide implies a 37% growth rate and 36% growth rate respectively excluding Caviar. And secondly, we are making meaningful investments into the business with payback periods of about 4 quarters, particularly for the seller sales and marketing investments. So to break it apart between seller and cash, with seller, we're expecting steady revenue and gross profit growth in 2020 from the current Q3 baseline that you heard of about 27% 26% growth respectively. But again, keep in mind, these investments that we're making tend to have a 4 quarter payback. So we'd expect to start seeing the impact on top line numbers towards the end of 2020 as we add new cohorts into the seller ecosystem.
For Cash App, we've reached pretty significant scale representing a quarter of our revenue in the 3rd quarter very rapidly. The growth in 2019 has been greater than 100% on the top line and now with over $600,000,000 annualized revenue run rate, naturally growth rates at this level you'd expect to come down over time. The biggest drivers for Cash App, as you know, Instant Deposit and Cash Card will be growing in 2020 off of a larger base as those two business lines have ramped rapidly during 2019. And ultimately, we're focused on growing revenue scale on a dollar basis here. That said, we're continuing to invest aggressively into both our Cash App ecosystem as well as our seller ecosystem.
And we think we're in the early days there in terms of customer acquisition and in terms of the product roadmap. So we'd expect to continue to see strong and growing contributions from Cash App going forward. With respect to margins just quickly, we see attributes in the Cash business that are very similar to what we see in the seller business in terms of efficient customer acquisition, in terms of retaining customers over the long term and in terms of positive revenue retention. And because of that, we've been able to increase cash margins each of the last 3 years and we'd expect to do the same in 2020. So over the long term, we see a very positive trajectory there as well.
All
right. Very clear. Thank you.
Thank you. Your next question comes from the line of Darrin Peller from Wolfe Research. Your line is open.
Hey, thanks guys. Just given that 30% margin disclosure on seller and obviously the backdrop of the lifted from Caviar sale on margins, Maybe just help us understand the priorities around the investments in terms of U. S. Seller versus omnichannel versus international. How can we think about the magnitude of the payback you're expecting and what that could mean in terms of just revenue inflection?
And we appreciate the guidance on 2020.
Thank you. So I'll start off and, Amrita can follow with some answers as well. But I think the most important thing is we have recognized a pretty compelling opportunity, specifically within seller. And we have found a lot of efficiencies in our model and we found a lot of areas that we can really focus on in sales and marketing that we think will move the needle for us in meaningful ways. So a lot of what we've identified is certainly continuing to build upon the product and being the best product out there, but we think we could do a much better job in supporting it, around awareness, but externally, but more importantly, awareness internally to our customers today.
So as we are set apart by the ecosystem nature of our business, the most important thing is that our sellers find all the tools that would help them run their entire business. And that's where we could do a whole we could do a lot better job, both in terms of the product experience itself and showing people the right tools to fit the right needs. With marketing via email or direct response and also with our sales team and account management. Our goal here mainly is to focus our sellers and make them aware of everything that we have to offer because if we have sellers who find value in multiple services and products from us, we build a much more durable relationship with the seller. So that's the immediate goal.
But the net is, we see a pretty significant opportunity to accelerate our investment and really grow the overall base.
And just to add to that, Darrin, with respect to the sizing, the $75,000,000 of incremental seller non GAAP sales and marketing in 2020, just to size that relative to that number in 2019, it's a 2x increase over 20 nineteen's incremental spend on both a dollar and a percentage basis. We have a large and fragmented addressable market for both seller and cash and we see tremendous attractive opportunities to invest into that. Specifically on seller, we see 3 primary areas of investment. As we think about our strong brand awareness of 80%, but our relatively low product awareness of 9%, we can see ways to move the needle across marketing, across sales and across hardware pricing. Specifically on marketing, we're investing in campaigns that improve our awareness of the broader product set beyond just payments.
We already initiated some campaigns this year in April and then again in September October. And we've seen some encouraging early results. In April, we reached 7,000,000 businesses and we've driven an uplift across indicators like awareness, web traffic and revenue contribution. So we would expect even with this elevated spend in 2020 to still see around a 4 quarter payback overall as a blended payback across all of our investments. Frankly, today, we believe we are too efficient in the U.
S. At a 3 quarter payback and in across some products even less than a 3 quarter payback. So we see opportunities here to expand the funnel even further. From a sales perspective, we see strong ROI comparable to marketing. So we want to lean in there in 2020.
And then from a hardware perspective, as mentioned in the prepared remarks, we see that when we flex pricing on compelling products like terminal and register, we're able to attract more sellers. So those are the 3 primary ways that we look to deploy incremental funds in 2020.
Okay. Thanks guys.
Thank you.
Your next question comes from the line of Beatrice Calderon from Square. Your line is open.
Hi, good afternoon. So I'm a Square seller and I am my business is called Housing Works Thrift Shops. And as a retail business, it would be helpful to see sales and inventory in one report. Has Square considered creating a report that would provide the sales and the inventory and also sell through percentages?
Yes. Thanks, Beatrice, and thanks for using us. This is a request we get from sellers a lot, and we know that managing inventory is pretty difficult and exceedingly complex. And we believe that ultimately it's our job to remove a bunch of that complexity to make it easier. So while I can't share the full details yet, heading into next year, we're looking to spend some time adding new reports like this and more broadly looking at opportunities to remove more and more of complexity from the task of inventory and reports.
Because ultimately, if we simplify things, we're given time back, so that you can focus more on your customers and your business.
Great. Thank you.
Thank you.
Your next question comes from the line of Josh Beck from KeyBanc. Your line is open.
Thank you for taking the question. I wanted to ask about Cash App. You gave the revenue growth rate, which was very helpful, 115%. Maybe you could just help us think through the composition of drivers and maybe how that's changing over time as either new products are introduced like stock trading or the app redesign or direct deposit and just how that can ultimately influence the growth composition of the drivers there?
Hey, Josh, I'll take that. So, yes, we had strong revenue growth for Cash App in the 3rd quarter, up 115% with gross profit actually up even higher at 125% year over year. We're seeing, as discussed, strong unit economics and cohort economics here. The primary drivers in terms of monetization levers across Cash App, We have a half a dozen of them, but the 2 primary ones are Instant Deposit and Cash Card. However, when we manage our product feature set across the ecosystem, we think about both engagement drivers and monetization levers.
And things like investing enable us to introduce new engagement drivers into the ecosystem that have the potential to raise awareness and raise the daily utility for Cash App, which then impacts the other levers that we have in Cash App around monetization. An example of that that we've seen more recently with our Bitcoin product, which we launched about a year ago, is that Bitcoin actives have a 2x attach rate to Cash Card, which means that when you're using the app on a more regular basis and when you're finding daily utility in the app, you're finding other important uses that we can provide you within the app. And so the tabs redesign was another piece of that to provide increased discoverability and navigation to many of those new products that we've launched over time.
Okay. Very helpful. Thank you.
Your next question comes from the line of Bryan Keane from Deutsche Bank. Your line is open.
Yes. Hi, guys. I saw the GPB stabilize this quarter at over 25%, even a slight acceleration on our math. Just curious what drove the strength, because it had been slightly moderating in the past few quarters. And it sounds like you expect similar GPV growth in 2020.
So with the investment now in seller, will we see an acceleration eventually in the revenues and TPV from that line in Q4 2020 and maybe into 2021? Thanks.
Hey, Brian, thanks for the question. Yes, we drove strong GPV growth at scale in the 3rd quarter, up 25 percent year over year to $28,000,000,000 And if you look at the last four quarters combined, we've driven over $100,000,000,000 in GPV. To break down what happened in Q3, there's a few important drivers to discuss across both existing and new sellers. Existing sellers were a source of strength for us, as they have been historically with positive revenue retention across all cohorts. And then on new sellers, we have 3 drivers, as we saw new sellers adding to the Square platform.
1st, larger seller GPV growth was in line with Q2, up 34% year over year and now comprises 55% of total GPV as a mix. 2nd, we're focused on expanding our total addressable market. In our shareholder letter, you saw us calling out new omni channel use cases like stadiums as an example. 3rd, we had strong growth in the quarter from international markets, where we actually had an acceleration in the Q3 versus the Q2. Though these markets are still relatively a small part of our business, growth in international continues to outpace the U.
S. As you look ahead to 2020, of course, we don't guide to GPV, but couple of things for you keep in mind on the trajectory of GPV in Q4 and into the future. First is remember we implemented the pricing change on our seller business for card present transactions on November 1. And we'd expect that to have an impact on GPV growth in the Q4 and into 2020. Although from a revenue and transaction margin perspective, we expect neutral to positive impact.
And then again thinking longer term, the investments that we're making in our seller business in terms of sales and marketing today, we're seeing encouraging early signs around them. But we do expect a payback period in the 4 quarter range, which means that these incremental investments would add incremental absolute dollars of GPZ in late 2020 and into 2021.
Okay, helpful. Thanks so much.
Thank you.
Your next question comes from the line of Lisa Ellis from MoffettNathanson. Your line is open.
Hey, good afternoon, guys. A follow-up on Cash App. This is more of a strategic question. How do you think about how Cash App is differentiated from this sort of like differentiated from this sort of like avalanche of other sort of neobanks that are popping up like a Chime or Discover Direct Banking? And then maybe more broadly, you just announced the ability to purchase fractional stocks.
Like what is the pipeline of additional services that you're planning to launch through Cash App? Like should we be expecting installment lending perhaps or maybe a credit card offering, some of a credit related offering? Thank you.
Yes. Thanks for the question, Lisa. There is a lot out there, as you point out. And one of the things that I'm really excited about is that just like Square, we've taken on a bunch of the complexity of connecting together the most critical needs in one place. And what that means is that people can come to it for very different reasons.
As Amrita pointed out earlier, like some people come to the Cash App because it's the easiest way, the fastest way to buy Bitcoin. And that allows for us to show them the other attributes it offers as well, including spending and receiving fiat money, storing money, getting a cash card that they can use anywhere Visa is accepted or go to an ATM to get paper cash out. And what is important about this is, we're not just an app for one specific thing, but a lot of the critical needs you might have that you would typically look to, from a traditional bank are built right in the app. So you can go to the App Store and you can download this app and you come in and you have so much incredible capabilities right away and entirely new capabilities like investing in fractional shares. So in terms of the competition and how we think about building it out, it really goes back to the square story of putting all these things together in one experience, we believe is very strong.
And they actually play off each other and reinforce one another in very interesting ways too. So we think that's a real strength. In terms of fractional shares and what features are coming, we're really excited about this feature. As I said, we think it's pretty transformational. And we do believe that this gives access to a part of the financial system that most have been left out of.
And there's a number of things that we could do if you just look at the other services within Cash App to really bring this to even more light and to even more strength. And that's just not what our competitors can do because they're focused on just one aspect of these financial services instead of considering how they all exist together and how they work together. And in terms of future features for Cash App generally, we're just constantly looking for critical needs and where we can make things in order of magnitude better in terms of the experience or accessibility or how we might be able to reinvent the approach of how people thought about buying stocks for instance. So that's what we're looking at. We have a bunch of experiments we're excited about, but nothing else in us today.
Terrific. Very clear. Thank you. Thanks a lot.
Thank you, Alicia.
Your next question comes from the line of Harshita Rawat from Bernstein. Your line is open.
Hi, good afternoon. My question is on the competitive environment in the seller business. There's a lot that has happened over the last few years in terms of growth of integrated players. There's now a lot of cloud based POS providers out there. And of course, there's been some consolidation.
So can you talk about what you're seeing from a competition point of view now versus a few years ago?
I don't think it's really any different from when we started the company. We saw a lot of folks who were building solutions for parts of the ecosystem, but very few who were building an ecosystem. And that is what continues to set us apart both on the seller side and also more recently on the cash side. We don't have a company that's just focused on one tool or one use case. It's really focused on how do we ensure a seller, number 1, can run a business, and ideally, how do we help them make more sales.
And a lot of our tools are really focused on looking for opportunities to help sellers make more sales, which is great for us because if they make more sales, we grow as a business. And as we grow as a business, we can help more sellers. And we just don't see much else of that out there. But what really sets us apart is even if there are companies out there who are attempting to bite at the edges of an ecosystem. They're only doing it with 1 ecosystem like seller.
They don't have the equal pairing of individual ecosystem like Cash. So while we can focus on the strength of the seller ecosystem, if you zoom out a bit, what's really powerful is that we have an at scale seller ecosystem and we have an at scale buyer ecosystem in Cash App and they're in the same company. So this is very rare. And I don't know of many others that have this capacity and that I think really speaks to our true differentiation and our true power and our true potential ahead. As I said in my opening remarks, we do believe we have a lot of invention to bring to financial services and we're guiding that invention by bringing more access to more people and that's both sellers and now individuals through the Cash App.
So I think it's quite strong and I just don't see it's I don't see its complement in the market.
No, Harshita, just to add to that. It's always been a competitive landscape, but we continue to gain share. Our volume is growing at 25% these days relative to the rest of merchant acquirers on average growing 5% to 8% and the network is growing low double digits. So we are growing, we're growing fast and we're continuing to take share in a large and frankly still very fragmented market. And that just speaks to payment volumes.
Our ecosystem does much more than that as Jack was saying. We have many more monetization levers beyond payments when you look at subscription and services for seller and when you look at the broader buyer ecosystem with Cash App.
Thank you very much.
Your next question comes from the line of Dan Perlin from RBC Capital Markets. Your line is open.
Great. Good evening. I wanted to just parse out a little bit. I know you talked about it already, but the investments necessary to kind of capture the incremental seller. I'm trying to just think through larger merchants or larger sellers relative to different verticals or really just deepening the product penetration?
I mean, it sounds like a lot of it is an awareness to drive deeper product penetration, but I'm just trying to parse those 3. And then the other just quick question is on the international side on
the sellers. Can you just
give us some idea about what those cohorts look like relative to the United States in terms of size, maybe level of sophistication and maybe even number of products purchased? Thanks.
Yes. Thanks, Dan. So in terms of the investments, I mean, fundamentally, we believe that we have a suite of tools for sellers that scale. And it scales from the very small to the very large. And where we don't, we have a platform and API strategy that larger sellers can fill in whatever they need to, whether it be legacy hardware or inventory systems.
So that strategy has continued to play out. And as we think about our investments, as we talked a bit about a little earlier, we have a bunch of levers to pull. Certainly, awareness of more of the products is important. Sales our sales team and account management is another important area for us. And hardware is an area that we can also see a lot of potential.
And this is independent of whether you're a large seller, you're a restaurant, you're a retail organization, we can really customize a solution around each one. So we're not necessarily guiding that to a particular size of sellers. It's more focused on the use cases and how utilizing more of our tools will make your business a lot more efficient and run better ultimately, hopefully leading to more sales for you and your company.
And I'll just add to that, Dan. On the point about larger sellers, we continue to have strong traction there with larger sellers growing 34% year over year in Q3. The products that address larger sellers, as you know, our vertical point of sale around retail and restaurants, our developer platform where you can create more customized product offerings for larger sellers and some of our newer hardware products, terminal and register. In terms of the go to market ways that we can address larger sellers, our marketing campaigns we believe address small and large sellers alike. And we do see that larger sellers have a tendency to take on more products.
And so the focus of the campaign being the broad suite of products that we offer beyond just payments, we feel can resonate with large sellers. Finally, the sales team growth, which we expect in 2020 should also address larger seller needs and more complex seller needs. I did want to address your international question. We see that our cohorts of customers internationally similar to the U. S.
Have positive revenue retention, which is an important thing for us obviously to continue to measure. We most recently launched our terminal product in Australia, Canada and the U. K. In this past quarter, and those launches were successful launches for us. We're seeing that we're unlocking new use cases as we bring our full suite of products to our international markets.
So we're excited to continue doing that in 2020.
That's great. Thank you.
Your next question comes from the line of Andrew Jeffrey from SunTrust. Your line is open.
Hi. Appreciate you taking the question. I wonder if I could dig just a little bit deeper into Cash App. You've talked about a number of ways. You're looking to monetize it.
I mean, if there's any pushback we get is that it's really an instant deposit product 1st and foremost, and I think you fleshed out the means by which to advance beyond that. But I wonder if you could elaborate a little bit on the merchant flywheel. It strikes me that this is a pretty powerful tool for merchants who have receipts from Cash App or a Square Capital Loan or whatever the case may be in that it can really act as a small business bank account, substitute for traditional account. Could you just elaborate on that and how you think that sort of plays out to the long term ability to monetize that ecosystem?
Andrew, I'm not sure I'm following your question. Are you talking about the Cash App or Square Card?
Well, I mean, I think about Square Card as being sort of integral to that whole value proposition.
Yes. So with the so we have 2 main offerings here that I think speak to the flywheel that you're talking about. One is the Square Card, which allows sellers to store money with Square and we can also issue them a Mastercard that allows them to spend instantly and get access to their funds around their business instantly. And we think that one has been a pretty amazing product experience, but entirely new functionality that serves as another reason to join Square and to enter into our ecosystem. In terms of the Cash App, there is a lot of opportunity between our receipts as a way to drive more Cash App downloads and usage.
And there's a potential intersection between what we're doing around loyalty on the seller side and boosts on the Cash App side. So these are things that are definitely questions for us and would love to experiment with. But it all goes back to the broader point that we believe that while these two ecosystems are extremely strong at scale and quite powerful and that each one of them has tools that reinforce one another, it's when the ecosystems themselves reinforce one another that makes the company truly incredible. So we will continue to look for smart ways to bring these 2 ecosystems together driven by customer needs and that's customer needs on the seller side, but also on the Cash App side.
Thank you.
And your next question comes from the line of Peter Christiansen from Citi. Your line is open.
Good evening. Thanks for the question. Jack, I want to ask you more of a philosophical question. As you think about these 2 ecosystems, both have different competitive dynamics and are in different phases of maturity. How do you think how does Square think about balancing the investment between Seller and Cash App?
And perhaps what are some of the key variables that you consider when you're in the decisioning process as you invest across the company broadly?
Yes. Thanks, Pete. Great question. So this is going to be something that we're constantly learning from. I mean, the most important thing is we recognize this opportunity on the seller side of the like how we're thinking about investing within seller and all the payback periods we're seeing, ROI we're seeing in the tools.
It it just begged for more investment. It just felt like we're leaving opportunity on the table by not focusing on growing this in a much more substantial way. Cash, on the other hand, has had that mindset for some time and has really been focused on network first. And what gives me a lot of confidence is we have a pretty deep understanding of how both businesses work and what levers to pull, where we can be pretty agile about when to drive growth and when not to. And we've come a long way with the Cash App and how we think about building that network.
But ultimately, over time, we want to continue to build features that people love, that people can't find anywhere else. And as I said in my previous answer, I think there's a lot of potential between the 2 ecosystems. So we will be constantly looking for these opportunities to grow both ecosystems, but more importantly, ways to connect the 2 together.
And Pete, just to tie that to our 2020 outlook, we see strong opportunities to deliberately invest in both of the ecosystems in 2020. For seller, today, as you know, as we disclosed, we see strong profitability with adjusted EBITDA margins of nearly 30% in 2019 expected for the full year. That's up from negative 9% in 2015. In a very short period of time, we've been able to scale this ecosystem while driving strong profitability and seeing very compelling returns, as Jack was saying. So we want to intentionally invest for future growth in our go to market efforts that we outlined earlier in the call.
And so for 2020, we expect margins in the seller business as a result to slightly come down. And we do expect to start seeing returns on these investments that we're making towards the end of 2020 and into 2021. With cash, given the strong cohort economics that we've seen, given the margin expansion that we've seen over time over the past few years and given the continued scaling of the ecosystem, we expect to see some margin improvement in 2020, even as we continue to invest in scaling the ecosystem. So those are some of the dynamics for how this investment model plays out for 2020.
That's very helpful. Thank you.
Thank you.
Your next question comes from the line of George Melos from Cowen. Your line is open.
Hi, this is Allison on for George. Thank you very much for taking my question. I wanted to follow-up on the GPV commentary from earlier. It looks like the year over year growth in the sub-one hundred and twenty five thousand GPV seller category accelerated this quarter versus 2Q. I'm wondering if there's any color you can provide there?
Thank you. Thanks for the question, Allison. GPV growth from larger sellers was 34% in the Q2 sorry, in the Q3 and actually also in the Q2. From a mix perspective, larger sellers were up slightly quarter over quarter, so 55% in terms of mix and 53% in terms of mix in the Q2. So we continue to see real traction with larger sellers and continue to build out products as mentioned earlier in terms of vertical points of sale, in terms of hardware and in terms of the developer platform to address this base of customers.
Thank you.
And your next question comes from the line of Jason Kupferberg from Bank of America Merrill Lynch. Your line is open.
Hey, guys. Just a quick clarification on a question. Just on the clarification, so I want to make sure I've got the numbers apples to apples right here. So your growth in 2019 ex caviar is forecasted now at 46%. And on that same basis, we're talking about low 30s in 2020.
So I just want to get a clarification on that. And then, can
you just give us a sense on
the $75,000,000 of incremental sales and marketing? How much of that will be U. S. Versus international?
Sure. I'll take that, Jason. You've got that math right in terms of full year 2019, the guide at the point ex Caviar for the full year is $2,100,000,000 which is a 46% growth rate year over year, which is actually the same growth rate that 2018 would have been on an ex caviar basis. But as you think ahead to 2020, keep in mind the exit rate that we've got coming out of 2019, which is a 37% rate in the Q4 ex caviar on adjusted revenue and 36% growth rate on gross profit at the midpoint. In terms of the $75,000,000 of marketing investment, U.
S. Versus international, the international markets today are about 5% of our revenues. They will be a higher percentage of our marketing investments, but the vast majority of our marketing investments still go towards our U. S. Markets.
Thank you.
Your next question comes from the line of James Friedman from Susquehanna. Your line is open.
Hi, thanks. It's Jamie at Susquehanna. I just wanted to ask Amrita, in your prepared remarks, you had mentioned that some of the EBITDA upside in the Q3, which was a surprise to us, You said that some of it came from core and some of it came from timing of expenses. I was just hoping you could elaborate a little bit about that. And I just have to ask about Eventbrite.
Those comments were helpful too. But if I was interpreting what you're saying relative to the GPV versus what sounded like a less important revenue factor. Was that about price or am I just oversimplifying? Thank you.
Sure. On the first part of your question, James, on the EBITDA beat, that's right. It was driven by both over performance in our seller and cash ecosystems offset by underperformance in Caviar along with over performance related to expense timing, as well as some efficiencies. We do expect most of those expenses to materialize in future quarters. And as we have in the past, we plan to reinvest any outperformance that we've had back into these ecosystems through both product and sales and marketing efforts to grow for the long term.
With respect to Eventbrite, I didn't quite catch your question, but I think you were asking why there is less of a revenue impact relative to GPV. And yes, the take rate on a deal like Eventbrite is much lower. So that's why from a GPV perspective, there would have been an impact, But from a revenue perspective, the contribution from Eventbrite would have been de minimis.
Got it. Thank you.
Your next question comes from the line of Ramsey El Assal from Barclays. Your line is open.
Hi, thanks for taking my question. Given all the puts and takes in your evolving business mix and not to steal thunder from Analyst Day, but how would you frame up that your kind of normalized margin profile at this point? I know that you have a completely different business than you did when you at our first Analyst Day meeting. So I was just wondering if you could comment on that. And then just a quick bolt on is, what's the revenue model for the stock trading feature?
How do you make money on that? Thanks.
Sure. I can take that. On our last Investor Day at our last Investor Day, Cash App was sort of a twinkle in our eye. And obviously, it has grown rapidly since then. It's now a quarter of our revenues.
And so clearly, I think at this next Investor Day, we'll be sharing much more with you about Cash App in terms of product roadmap and business model. And so I think it's premature for us today to give you a long term view in terms of margin profile. But what I can say is as we've shared with you this quarter compared to our last Investor Day, the dynamics in our seller ecosystem, which was the majority of our business in 2017, have largely stayed the same or gotten better. At last Investor Day, we talked about a 20% to 25% long term top line growth and 35% long term margins. And just a year and a half later now in 2019, we stand here having achieved nearly a 30% margin by year end and having exceeded the top line growth targets, all with a 3 to 4 quarter payback and positive revenue retention.
And then with Cash App, we have scaled it rapidly since the last Investor Day and as mentioned, have continued to see margin expansion from Cash App for each of the last 3 years with very similar dynamics in terms of cohort economics and compelling returns on our investments, very similar investments, very similar dynamics in cash up to what we see in the seller ecosystem. So we're excited to share with you more when we meet at Investor Day. With respect to monetization of investing, as we noted, there's no commission fees related to our investing product today within Cash App. The majority of the costs associated with investing will be brokerage costs and it will be included in our sales and marketing line related to Cash App. We really view this product set to be an engagement driver for us as we mentioned earlier to help build out the network and to help bring discoverability and utility to the app, that enables growth for other revenue streams within the app.
Thanks so much.
And that is all the time we have for questions. At this time, I'd like to turn the call back over to the company for some closing remarks.
Thank you, everyone, for joining our call. I would like to remind everyone that we will be hosting our 4th quarter 2019 earnings call on February 26. Thanks again for participating today.
This concludes today's conference call. Ladies and gentlemen, thank you for participating in today's program. You may all disconnect.