Good day, ladies and gentlemen, and welcome to the Square 4th Quarter 2016 Earnings Conference Call. I would now like to turn the call over to our host, Jason Lee, Head of Investor Relations. Please go ahead.
Hi, everyone. Thanks for joining our Q4 2016 earnings call. We have Jack and Sarah with us today. First, we want to remind everyone of the format of our earnings call. We have published a shareholder letter on our Investor Relations website, which was available shortly after the market closed.
We will begin this call with some short prepared remarks before opening the call directly to your questions. During Q and A, we will take questions asked from our sellers in addition to questions from the conference call participants. We would also like to remind everyone that we'll 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 GAAP results. 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. Thanks, Jason, and thank you all for joining us.
In part of this call, we issued our quarterly shareholder letter with detail on our Q4 performance and financial results, which I encourage you all to read. We're really proud of our 1st year as a public company. We delivered value to our customers in a way that meaningfully grew Square's business at scale, increasing revenue and improving margins. We see this by being true to our values and committed to our purpose of economic empowerment. I want to take a moment to talk about our priorities in 2017 and how we tie them to our values.
We started Square 8 years ago, Making it easy to take credit cards with our first step in providing opportunities for people to engage in commerce where they're traditionally excluded. By removing credit checks, long term contracts and other blockers to card acceptance and by giving away a free card reader, we start building a service that would empower millions of people to participate in the economy. Today, sellers come to Square for much more than managed payments and hardware. They come for financing, payroll, customer management and even delivery. We've chosen to build these tools as part as of one cohesive ecosystem, as opposed to a series of singular disconnected services.
For the sellers are in food, retail or services or have one location of 50, we can pick from a menu of services and get up and running fast with Square. Everything works together seamlessly to help our sellers make smart decisions for their businesses. There's a lot more we can do to make payments from financial services more successful and to help our sellers succeed. We have 3 areas of focus this year: integration, automation and platform. 1st, integration.
We will make our services work together more cohesively. For example, in February, we launched Square for Retail, our 1st industry specific point of sale. In addition to integrating with our payments and our hardware, Square for Retail integrates with our customer directory, gives sellers advanced client selling capabilities to build customer profiles and provide purchasing history directly from the point of sale. We believe integration is why so many sellers choose Square, and we will build down here. 2nd, automation.
We'll make our services more self serve. Automation saves time, which is important for our internal teams and for our sellers. For example, we've invested a lot in machine learning across the company, especially in risk, where we automate risk assessment for 99.95% of smart transactions. We'll look for more ways to apply machine learning to help automate both our internal tools and customer facing experiences. And finally, platform.
We need to build more APIs and SDKs that our internal teams can use and that external developers and partners can build onto. For example, we use the technology behind our e commerce API to build and launch Virtual Terminal in just 2 months. Virtual terminal allows sellers to key in payments from a web browser, a deal for sellers who typically use a computer instead of a mobile device. The product has attracted new sellers and captured additional volume from existing sellers, which already generated more than $40,000,000 in GPB in January. Fast product development benefits all aspects of our business, and a stronger platform will make us even faster.
By focusing and investing more in integration, automation and platform, we can push Square, our sellers and the economy forward. Now I'll turn it over to Sarah for some more detailed remarks on our financials.
Great. Thank you, Jack. We're proud of our Q1 results achieving significant growth of scale in 2016, while improving our margins. We continue to efficiently add new sellers and help them grow their business after they join our platform. Before I dive deeper into our results, let me take a moment to explain a nomenclature change in our key revenue lines.
We changed transaction revenue to transaction based revenue and software and data product revenue to subscription and services based revenue. This is only a change in naming convention, there's no change to historical revenues and no change to the products and services included in each line. Gross payment volume for the Q4 was $13,700,000,000 up 34% year over year. Total net revenue was $452,000,000 in the quarter and adjusted revenue was $192,000,000 representing a 43% increase from the prior year. For the full year, adjusted revenue of $687,000,000 rose 52% year over year.
Transaction based revenue and transaction based profits as a percentage of GPB are consistent with the prior year period even as our GPB mix from larger merchants continues to grow. We maintained a payback period of 4 to quarters for our seller acquisition costs and a positive dollar based retention rate. GAAP net loss was $14,000,000 in the 4th quarter. This equates to a net loss per share of $0.04 compared to a net loss per share of $0.34 in the Q4 of 2015. Adjusted EBITDA was $30,000,000 this quarter, which represents 20 points of margin improvement year over year.
This improvement reflects strong top line growth and benefits from improved operational efficiency and ongoing improvements in our risk management. That, let me turn to guidance. And please see our shareholder letter for details on our Q4 guide and I'll discuss the full year now. Our 2017 guidance reflects plans to continue to invest in scaling our business for future growth, balanced by our ongoing commitment to margin expansion. For 2017, we expect total net revenues to be within a range of $2,090,000,000 to $2,150,000,000 and adjusted revenue to be in the range of $880,000,000 to $900,000,000 Adjusted EBITDA is expected to be in the range of $100,000,000 to $110,000,000 and year over year margin improvement of 5 points at the midpoint.
We expect net income per share to be within a range of negative $0.24 to negative $0.20 dollars and adjusted EPS to be in the range from positive $0.15 to positive $0.19 So with that, let me turn it back to the operator to start the Q and A portion of
call. And our first question comes from Jason Kupferberg with Jefferies.
Good afternoon. This is Ryan Kerry on for Jason.
I was hoping to dig a little bit deeper into the relative profitability of the business segments. So if you look at the $100,000,000 to $110,000,000
in EBITDA expected in 2017,
is there any color you can provide on what percent of that you expect will
be driven from the subscription services side of the business versus more of the traditional transaction side?
Sure. Thanks for the question. I think overall, as we look into our guidance for 2017, coming up with very strong 2016, good momentum in Q4 in terms of top line growth and ongoing improvement on the margin side. When I think about the overall guide on the margin side for 2017, we do plan to continue to invest in our business. We see a lot of white space in front of us, particularly in areas like the move from offline online to offline, on international and of course the continued move up market.
In terms of margins themselves, I would look at it as G and A is a line item that we expect to see greatest leverage from. Clearly, we're benefiting from a lot of the investment we did pre IPO. From a product dev perspective, we are a product first company, so expect us to continue to invest in key engineers, data scientists, designers. We want to stay very front footed on that. That's where as we scale, there should be ongoing improvements there too.
And then finally, sales and marketing for us is very much a variable expense. And as long as we continue to see a strong ROI or that 4 to 5 quarter payback period, we will want to continue to press and invest in there, particularly around some of the newer products. So, we think about the business more holistically, not necessarily profitability from either payments or the transaction based revenue or subscription and services based rather holistically, how do we bring more sellers to our platform and how do we continue to grow the piece of business of sellers who are already on the platform. Hopefully that gives you some context.
Okay. Thanks for taking my question.
And our next question comes from Aman Bhalla from B Consulting.
Hi, good afternoon. This question is to Jack. Jack, I often take payments from my customers over the phone. How do I know that that person and that credit cards are real? If the credit card is stolen, am I liable for that?
And how does Square handle this?
Well, Chris, thank
you, Aman, for being a Square customer, and thanks for the question. So, fraudulent charges are a key concern for all of our sellers and we wanted to make sure that we were building up a product and service that are 1st and foremost respectful of your time so that you don't have to worry about it. So our approach has been to really focus on payments of state management and chargeback protection. It's one of the services that we want to make sure that we provide our services as part of our offering. So it's not just about payments, but the full suite of everything that you need to protect yourself and your business.
Our ability to do this is based on the fact that we serve as commercial record for you and all of our sellers. And this means that when one of your customers receives a charge with credit card company, we handle the process. So after the credit card company contacts us, we reach out to you to obtain more information about the payment and then we respond back to the card company. So we're going to make this as seamless as possible for you. So you don't have to think about any of this and you can just focus on making the sale.
Excellent. Thank you so much for answering the question.
Thanks and thanks for using Square.
And our next question comes from Tae Sik Huang from JPMorgan.
Hey, hello. Thanks. Good afternoon, sir. Just wanted to ask on the let me ask about the retention rate, deposit retention rate. Is that level sustainable?
What trends are you seeing there? Obviously, you're scaling up pretty quickly here. So curious what's baked into your guidance on that? Thanks.
Great. Thanks, Tien Tsin. So we do continue to see really positive cohort economics overall. Already talked about the 4 to 5 quarters for that period and recall that is just for payments alone. So the transaction based profit that we make on payments is what covers the cost to bring all that cohort on the Square and that's a fairly wholesome cost that we apply there.
In terms of from there, what we are continuing to see is that as sellers join Square, they continue to grow. And so that's the key part of what's driving the positive dollar based retention rate. We have not to date talked about that including many of our new products. So if they take a capital loan, if they take payroll, if they decide to use some of our customer loyalty tools, we typically not bake that into how we talk about a positive dollar based retention rate. So clearly, all of those products could only add to that positive dollar based retention.
So we're quite excited by what the new products are showing in terms of providing value to that seller base. And we continue to expect more adoption there. And I think that will continue to drive ongoing growth of the base, so ongoing for the seller base retention. Thank you.
Thank you.
And our next question comes from James Smiler of Goldman Sachs.
Good evening. Thanks for taking my question. I was wondering if you could talk philosophically about the margin per different from here. You talked about the 500 basis points of expansion implied in the guidance. Can you talk about that to the extent that you start to overrun those goals over the course of the year, would you automatically kind of put it back in the business or would you want some more growth online?
Great.
Thanks, Jim. So we do still see tremendous growth opportunities in front of us. And it is a balance always of making sure that you do keep investing not just for 2017 growth, but it's really about how do we think about the decade of growth. And a lot of the businesses that you start today, you really won't start to see the impact of for maybe multiple years. It is interesting that businesses that we've launched in 2014 are now comprising a quarter of adjusted revenue.
And that actually surprises me very positively that they can have such a big impact in just 2 years. But with that said, we do want to make sure we keep doubling down into the places where we see a lot of white space. So I think as we look through 2017, we want to keep coming back and doubling down into areas that are doing well. So I think as we see margin progression, our inclination will be still to invest behind growth. We're very pleased with the 5 points that we've guided to for the year.
I think it's very consistent with managing the business strongly from a top line growth perspective, but also mindfully allowing margins to improve. And I think we stand behind that guidance. So thank you.
Great. And then maybe as a quick follow-up, I want to ask about Square for Retail. Maybe do you want to make quantitative on how that's gone so far in terms of uptake from the existing sellers and more ones? And then maybe talk a little bit about what your emissions or plans would be 2 years out, what would you consider being said for that?
Sure. So it's still very early days. So this product really just launched a few weeks ago. It really speaks to what we've heard from our sellers that they do need something quite specific in the retail vertical. And that's true for verticals like food, it's true for verticals like services.
On the retail side, we really dug into a product where we wanted to give it a much more retail friendly UI. So they're dealing with tens of thousands, maybe hundreds of thousands of SKUs. So it has a very kind of fast search based interface. In addition, we wanted to have deep inventory management behind it. And then I think the third thing we heard from retailers was definitely a need for more CRM sales as the point of sale itself, fine telling,
to be
able to attract the customer
when they're right in front of you making the purchase. So we're excited, certainly for what the product together and through prior to a full launch, we clearly had a lot of impact from the sellers who were on it. I think in terms of looking out the impact to numbers, really more think about
the market.
So there are about 450,000 retailers in the United States in the small to midsize business category. They represent about $700,000,000,000 of TPV. And so I view that as just a big market expansion that we did here now in Q1. As you think about 2017 guidance, clearly, we've put some faith in the ground of what that can look like for 2017. We're not yet ready, I think, to look at multiple years and give you specific guidance on
it. Thank you. Thank you.
And our next question comes from Kelly Barker of Prep Cosmetics. Hi there. Will there ever be a Square Business credit card? It would be such an option for small businesses to use for everyday purchases. And it would be even better if the credit card came with some sort of a loyalty program, perhaps tied to lowering the Square transaction fee or even a simple cashback program or even like redeemable gift cards?
Hey, Kelly, this is Jack. Thanks for the question. Thanks for using Square. It's a great question. So we've been approaching this more in what financial services can we offer for businesses that fit into the business immediately.
So one of the beautiful things about our model is if we focus our efforts on building tools and services to help sellers grow, our business grows as well. So we have this very, very nice virtuous loop. And that's why we got started in payments in the 1st place, but that's also what led us to things like Square Capital, where a number of businesses were not able to get a loan amount that you would typically see on a business credit card, for example, from a bank. So it's replaced some of that usage. So we've focused the majority of our energy on making sure that we're building a service that really helps the seller grow.
I'm looking less about the less around the specific answer, but more around the use case. Sellers need faster access to their funds. They want to take loans. They want to be able to have access to the money immediately, and we focused on Square Capital and also Instant Deposit. That said, we're always looking for opportunities for us to provide more financial services to sellers and also to individuals.
Square Cash is an area where you see some of this on the individual side where people have downloaded Square Cash and they're storing money in our stored value account and using a virtual card, which then they also turn into they put on Apple Pay to actually use as a spending device. And so they're using that to spend online and also offline. And we also have a number of businesses on Square Cash as well. So we're definitely not close to it, but we want to make sure that we're focused on the most important use cases. And the most important use cases for sellers right now are to make sure that we're giving them fast and easy access to their money, and also giving them fast and easy access to loans so that they can control their business.
Okay, great. Thank you.
Thanks, Charlie.
And our next question comes from Darrin Teller of Barclays.
Thanks, guys. Nice job. First starting off,
on the large merchant growth rate keeps showing strong. And I guess a little color if you can on what's the most recent drivers of that and the sustainability that
I mentioned 'seventeen? And then I
guess as a follow on related, I mean the peak rate being sustainably as high as it is despite the merchant being larger, Can you just give
us color on that sustainability throughout
the year and again some of the incremental drivers that can keep that up?
Well, I'll take the first part of the question, Darren. This is Jack. So, I think when we talk to larger sellers, the same attributes that smaller sellers come to Square 4 are attractive, and that's the speed of our offering, simplicity, the elegance. But more and more, I think the platform aspect of what we're doing is important here as well. So build with square is something that larger sellers can take to and integrate with the system.
So it just opens more of the doors for how they want to run their business, whereas before, they just would not they did not have access to the data they needed to actually integrate it into the workflow. And then the other opportunity that we see is we do have a significant percentage focused on retail and larger sellers being retailers as well. So it's one of the reasons that we launched Square for Retail is we believe we have an opportunity to build another utility that can scale to any size of merchant. And this is something that we're really focused on and making sure that we're building a tool that is independent of size, and I can take as one store, but I also can run as 100 stores. So we've learned a bunch from how people have taken to the platform and large sellers in particular.
But ultimately, we want to get that into every aspect of the tools, so they don't have to really think about their size and whether compatible with their business and that's actually working out really well. Okay.
Yes, we'll answer the take rate question.
So I think overall, the take rate sustainability, I think, just underscores the value that sellers place on the overall commerce platform that they come to serve for. So as we've talked about, if you just look at Managed Payments, and it's going beyond, it's helping them take every tender type that crosses their countertop, be able to account for that and look at reporting and analytics for it and that includes cash or check as well as electronic payments. It allows them to manage risk. In the next question earlier from our seller, this is a real pain point and it's something that we put a lot of effort behind to keep our sellers safe and secure. It's next big settlement, so maybe instant settlement if you want it.
And so I think just like the smaller sellers, larger sellers want all of that too. When they look at the total cost of ownership of Square and they look at the upgrade on payments, plus the hardware costs, the software fee that they may pay, it still stacks up as a really compelling offering. And so I think that's showing through in our numbers and we're very proud of that.
So you'd expect that
to remain stable through '17 as well more or less?
Yes. I mean, I think I would just look at what the overall trend line has been and just stay on the trend line. We don't expect it to particularly shift one way or the other. There are clearly, as we move to larger sellers, we will do a custom price, right? We're not afraid to do that.
Sometimes it makes a lot of sense because then they are going to maybe pay for retail from sales to a couple. On the other side, there are products like invoices where we did $324,000,000 in GTV invoices in Q4 and that's a product that actually spreads a little bit higher than our 2.75%. So it's actually a little inflationary to my take rate. So I think there's puts some things on both sides, but I think the trend line is the right way to look it up for 2017.
All right. That's great. Thanks guys.
Thank you.
And our next question comes from Brian Kenny from Deutsche Bank.
Yes. Hey, guys. I wanted to ask about the 4th quarter EBITDA came in at 30,000,000 dollars That was quite a bit higher than the $16,000,000 to $18,000,000 guidance. So for us, that was the biggest surprise in the quarter. What drove some of that outperformance versus your guys' expectations?
Great. Thanks, Brian. So I think just starting from the top, clearly, that $7,000,000 beat on the top end of our guided range. So we just see continued strength on transaction based revenue, grew 35% year over year and on subscription services 81% year over year. And clearly within that areas like capital as an example did very well sequentially.
I just saw very strong seasonality in capital when we'd expected it perhaps to drop off more towards the end of the year. So I think first and foremost that top line beat. And then I think on the OpEx side, we are continuing to drive for greater efficiency and we've talked about the use of machine learning, not just within the products that we show up to our sellers, but also within our own business. There are lots of areas where beyond risk where we can take ML and continue to create a better and better experience. I think support is a great example where we could absolutely insert a support answer right there in the moment for the seller, because we have context for what they're doing on their dashboard and with the use of ML, we can probably intuit what their problem might be.
So that's a great way to get more and more efficient internally. I would call at risk too though, because this is definitely a highlight in Q4. It was around 9 basis points of GPV, so actually a point below what has been our historical trend. For the year, risk loss was 3,000,000 dollars below what it was in FY 2015 and that's despite of that $15,000,000,000 of GPV. And the investments that we've put in, in automation to risk are clearly paying off.
And I think in Q4, we saw a pretty good performance there as well.
Okay. Super. And then just a
quick follow-up. For the guidance from the adjusted EPS, what is the fully diluted share count we
should be using and thinking about? Thanks so much
and congrats on the quarter.
So let me come back to you on the adjusted. We've not given guidance on the fully diluted share count, I'll follow-up with the team, and we will probably send our normal follow-up plus quarter of here to how to think about what's in the fully diluted share count and then how it may trend as you look out into Q1.
And
our next question comes from Dan Perlin from RBC.
So the question I have is on the three areas of focus check that you laid out, the integration, automation and platform. I think the one question that comes to mind is just how should we be thinking about just layering those into the model, I guess, throughout the year from a cadence perspective? And then the second part of that is, which of those 3 I know they all create scale, but I mean, which are the ones that you think are kind of furthest behind on? And so to the extent that you drive maybe higher integration that drive more attachment
and incremental scale, I'm just
trying to think of the relative importance of those 3. Thank
you. Yes.
I mean, I think the so I think the one that provides us the most leverage and probably where we have the biggest opportunity actually are 2 of them. 1 is the integration. So just further integrating our services and taking advantage of the ecosystem that we've built got is a really big opportunity. So I think we have a much greater opportunity to cross sell a lot of our products into our base. So one of the things that we hear a lot is that sellers just aren't aware of the services that we're providing.
So we see a ton of momentum there that we can fix. And then the other one is, we've been really fantastic at applying machine learning to risk, and it definitely shows. But we need to now apply it to every aspect of how we run internally, but also our customer experiences. And that's from the register to Square Cash, to Square Capital. So we're getting a lot smarter and better about applying that discipline to more places in the company.
And the more we automate internally, the more efficient we run. But the more we automate for our sellers, the more they can grow without having to think about much of the mechanical stuff that we would put them through otherwise. So those to me really stand out. Platform, we're really excited about because it's one that allows others to build on top of us and then we get more integrated into more services. And we also get a learning opportunity on what people need and where to go next.
But I think the 2 I'm most focused on are just like how we integrate better in terms of all the services that we have and then how we create more automation within it. In terms of layering them in onto the model, these are three themes that just kind of make everything better. But they are in priority order. So we are focused 1st and foremost on making sure we better integrate our services and take advantage of the cross sell opportunities, automation. And then getting those 2 right provides a much stronger and more cohesive platform for both internal teams and external teams.
And ultimately, it just allows us to move faster. I think virtual terminal is a good example of this where we went from 0 in building a product in 2 months to some pretty impressive growth in that product. So there's a number of things like that we can do with a stronger income platform that we can also make external as well.
And our next question comes from James Faucette of Morgan Stanley.
Thanks a lot. I wanted to follow-up question on transaction losses, etcetera. I'm sorry you indicated that you'd obviously made great strides there. How are you thinking about those going forward? And can they remain low as much they have been?
Or what are your assumptions and planning for 2017? Thanks.
Hi, James. So I think overall, as we look into 2017, we kind of expect a relatively steady state from Aerosene in 2016 as we plan, although we always want to do better. But as we go into new countries, as we launch new products, we will bring with them new challenges. And so I want to make sure we're staying mindful of it.
So I would kind of think about it as
more steady FY 'sixteen going into FY 'seventeen. We note that within transaction and advance losses, there's also the capital portion. I didn't talk about it earlier, but it was also a highlight, which continue to maintain 4% loan default rates. Again, that speaks to the quality of the data that we have. It's very, very unique to Square that we get an eye into someone's business via their point of sale, very high quality data that we can then feed into our models that continue to sustain this sort of default rate.
And we will, of course, always want to press and get better there, but making sure that we also are mindful of growth. So, Nana, I would kind of view it as steady as she goes as we go into 2017.
And our next question comes from Andrew Jeffrey of SunTrust.
Hi, thanks for taking the question. With regard to sort of the GDP growth this quarter, which decelerated a little bit or still remains impressive obviously. Just wondering if some of that is sort of law of large numbers and how much of the modestly slower growth from larger merchants feeds into that take rate? In other words, do we look are we looking at a period of sort of approaching steady state sustainable revenue growth as margin expands? Or how do you frame up the relationship between those two items?
Okay. So I think I get the crux of the question. I think from a GTV perspective, you're continuing to grow at 34% year over year when you're doing $14,000,000,000 in the quarter. We're really proud of the scale that we're at and we're still sustaining this sort of growth. And I think when I look at where GBV growth continues to come from, as we look out through 2017, I talked a little bit about that white space.
So we still have an ability to move, I think, more upmarket, but continue to take more share in even in micro. There's still a lot of sellers out there who are cash only. And every day we're bringing them on to the platform and showing them the benefit of being able to take electronic payments because it helps their business grow. So I think the base still has a lot of opportunity in it. Clearly, as we turn on new international markets like Australia, it's been a highlight in the last year and done quite well.
That also provides a good growth factor on the GPV front. And then the shift from offline to online, Jack talked about platform is another new arena for us to play in, in terms of GPZ growth. So I would say we continue to expect to see a healthy quest and we're investing in that way. In terms of steady state revenue growth as margin expands, I mean, I think we would say we've given you the guide on what we expect revenue growth to be. At the midpoint for the year, it's still 30% clip.
And against that, 5% or 5 point margin expansion. So I wouldn't say we're in state land, yes, but we're clearly still in high growth land. And we feel confident in the guidance that we've given you.
Okay.
That's helpful. With regard to sales and marketing, is it still your view that about half of your new business comes by word-of-mouth? Has that changed at all?
So overall, we have built a product that is really loved by our merchants. Our Net Promoter Score has stayed in the 70 range, which is really kind of unheard of in a way for an enterprise type product but it sounds much more like a consumer product. Even there, it would be right up in the top percentile. I think because of that sort of Net Promoter Score, the flywheel of growth where sellers tell sellers about Square and that's how they come on to the platform, that remains a really strong flywheel for us. Coming back to how you can all measure it and look at it externally, we're maintaining that 5 to 4 to 5 payback period because we both benefit from the word-of-mouth as per today.
And then that allows us to continue to press into other scalable channels, be it search, be it events, it could be retail, it might be direct mail or even kind of out there on the platform DIRECTV. So when they're all blended together, that's really the ROI that we look at by cohort. Okay. Thank you. Thank you.
And our next question comes from Neil Goshi of Mizuho.
Hi, Neil. You might be on mute. Okay. Operator, I think we either move on or can you just check the line?
And our next question comes from Paul Conja of Credit Suisse.
Hey, thanks and afternoon all and nice job here. I just wondered, can you give us any color on revenue growth across your segments, any kind of qualitative things just to kind of
help us model out what
to look for, what transactions might
look like, what subscription services might look like in hardware?
Sure. So in terms of total guidance, so I think it's like 30% year over year growth and adjusted revenue for 2017. Again, I would come back and think of the fact that we think about our business holistically. And so how products get monetized, were somewhat indifferent too. So there are new products like invoices that they get monetized through a transaction fee.
So you'll see them in transaction based revenue. And there are products like retail point of sale where we charge a subscription fee. And so rather than going line by line, we holistically think about what is the market opportunity ahead of us and how do we continue to both grow the base of Square sellers with both cross sell and up sell, as Jack talked about, and then also add net new. I think we've given you some help in products like capital, for example. So you called out that we consolidated loans of $248,000,000 in Q4, 68% year over year.
Given you that each quarter, I think you're able to kind of draw from that some sense of what capital looks like as we go through 2017. Within the subscription and services fee line, caviar would be next in terms of scale and then after that instant deposit. But I want to come back to just overall when we think about revenue growth and when we build our model internally, we think about it holistically across all the categories, not building each category up line by line.
Okay. Thanks for that. And my follow-up would be, I heard from the discussion that maybe you were considering ISO distribution or some kind of third party distribution. I'm wondering if that is a discussion that
you're having or maybe you could kind
of frame up the debate and
how you're thinking about that?
Yes. I mean, it's always been a question that we've had. We're looking for all available channels to us to make sure that we're reaching sellers where they are. As Sarah talked about earlier, our the fact that our hardware shapes as a company's name makes us very, very discoverable and always has been. So every time there's a square register or a square in a device, it's a marketing impression.
And we have this very rich network of sellers who are talking about us, because we're handling more and more of their business. So that continues to be a strong driver for us and creates a lot of word-of-mouth attention. So we haven't found it necessary to go beyond those particular channels that work really well for us, the word-of-mouth, the online, the retail stores. So those continue to serve us extremely well and we haven't really we haven't found a major reason to go to channel that crisis. But we're always open to it.
The guiding principle here is just meeting sellers where they are. And we're finding that a lot of sellers are introducing us to other sellers. And that's been really powerful. Great. Thanks all.
Good afternoon.
You're welcome.
And our next question comes from Bob Natoli of William Blair.
Thank you. And nice job on the quarter. I know you're thinking, Sarah, things holistically, but I still would like to get a little better feel for some of the different line items. And Instant Deposit, you talked about a pretty big number, dollars 625,000,000 of volume. But you're saying most of that revenue shows up in transactions.
As you look at the quarter, Square Capital, and I know you in the past you talked about you had the ability to increase pricing. Some of the other lenders in the area like OnDeck have had a lot of pressure on their gains. The 40,000,000
dollars that you have, and I'm trying
to build a lot into this. Square Capital, are the gains still in the high single digits? Is Caviar growing very fast and a key long term product? What percentage of the revenue is Caviar? It would be really helpful if you could give a little more color on the breakout of that item, that piece of the income statement.
Great. Okay. Thank you. 1st, on the $648,000,000 that is for invoices as a product. Right.
And so not instant deposits. So invoices and invoices which show
up in
transaction based revenue. No, not at all. I just wanted to confirm. I think within the subscription service fees line, now let me start with capital, because I think you had a lot of questions in there. So capital as a product, I think what 2016 really unveiled was just how differentiated our capital product is in the market.
So, we have a base of millions of dollars. We have a very trusted brand and we're able to look at data that's very unique to their business in order to be able to manage the risk of a decision around being willing to pay them. So, I think 1st and foremost, we're doing something very unique. We're also meeting them where they are. They often get the flags on that capital loans being available in their dashboard or via an email, all avenues that they're conversing with us often on a daily basis.
I think therefore from an investor standpoint, because I think that's where you're talking about the high single digits, we therefore have seen a lot of interest from an investor standpoint because they understand the uniqueness of the product that Square is bringing. And so we have a very healthy group of investors in place today that can absolutely meet the capacity for growth for capital in 2017. And we have a list of investors who would like to get in on the program too. So we feel very good about the supply and demand, what's going on from supply and demand perspective in capital overall. On Caviar, we have nothing to put aside on revenue and so forth.
Super pleased with how that product is growing. I think we last talked about it being almost 11x since we bought it. We haven't updated that number, but just to say that it's continued to multiply from when we first purchased Caviar as a company. I think on the integration point, one of our big services as a company, it's a great example where integration really comes into its own. As a Square seller might onboard via Caviar, because they want to use delivery to grow their business, But quickly, we can show them some of the benefits of our client sale and of our broader platform.
And so we definitely do see products like Caviar becoming good on ramp. So I think that's an area where
we can continue to push for even
more integration over time. I think the final question on NC Deposit, still a very young product overall. We see a way to monetize it both for sellers, but also within core cash. I think on the seller side, for 2017, it's just more awareness. And to Jack's point, many of our products are still quite young and people don't know about them yet.
But we absolutely know that sellers want faster access to funds. And then when they get faster access to funds, they're able to use that for growth. And so we view Instant Deposit as just another factor for that. So hopefully that helps you think, at least from a qualitative perspective, where we're excited from a product standpoint and how we'd expect those to grow.
Okay. And the fastest growth piece of that is Square Capital in 2017?
It's probably no, it won't be the fastest because frankly when we have very new products like Square for Retail that are starting from a base of 0 or very small, small, smaller numbers that happens there. I think the point of capital is both large and material within that line item, but it still has very
Thank you. I really appreciate it.
And our last question comes from Tom McCrohan from CLSA.
Hi. Thanks for squeezing me in. Just want
to have a question on the API strategy. You're really opening
a new platform through APIs.
And if you can give us a sense
of the overall GTV contribution from your various API offerings as well as the relative margins for an API based GPB transaction versus your new business? Thanks.
Yes. So I'll start with that. So, platform is definitely going to focus for us and it's going to be a focus for us this entire year. And we had a strong start with Building Square, and we've seen some really good momentum and a host of amazing developers. And I think the most important thing here is it's giving us and our sellers more optionality, to provide custom solutions that can better integrate us into their workflows.
And that's really important for larger sellers, but we're seeing more and more how important that is for smaller sellers as well. One of the things that we're focused on a lot in the Build A Square platform is really making sure that we provide an amazing developer experience as well, so that we're saving developers time. So with our clients, whether it be small sellers or larger sellers, online or offline, we can move much faster and integrates quite a fast and so it can be up and running much faster. So it's still early, but we're learning a lot and we have a really strong team behind it. And we're also walking the walk to make sure that we use it internally as well.
And as I mentioned earlier, virtual terminal is a product that we were able to build in just 2 months given how mature our platform has become and the same tools are available to external developers as well. So early, but exciting and I'll turn it over to Sarah for TPV.
Yes. And so right now in terms of the contribution to TPV from the API strategy, not ready to yet call it out. It's still small and still in the early phases. And similarly from a margin perspective, it should not impact the margin. So as I talked about previously, as you think about 2017, I just look at the historical run rate of what's gone on for transaction based profit margin and continue to assume that same trajectory into 2017.
Thank you. Great. Thank you.
I'd like to turn the call back to Jason for closing remarks.
Thank you, everyone, for joining our call. I would also like to remind everyone that we'll be hosting our Q1 2017 earnings call on May 3. Thanks again for participating today.
This does conclude the program. You may all disconnect.