Appreciate everyone sticking around so you can hear my views on politics and the world and inflation and everything else. I'm sure that's on top of everyone's minds. Really, really excited and grateful to have the Block management team be the afternoon keynote. We've got Amrita Ahuja, COO and CFO of Block, and of course, Jack Dorsey, co-founder and chief Block Head. It's been a bit, it's been since COVID since we've had these guys, and I was telling Jack before, you know, following the payment sector, I've learned a ton just following Square and now Block for over the last 10, 12 years. A lot of the themes that we've been talking about, you know, software taking over payments and consumer and merchant platforms trying to bank their users, right?
I think a lot of that was inspired by what we learned from Jack and team. Super grateful to get the chance here to spend a few minutes and go through a list of questions I've gathered from you. Again, my name is Tien-tsin Huang. We'll try and get to some questions from the audience at the end, but I'm hoping we'll cover a lot of the important topics up front. Welcome. Thanks for being here.
Thank you.
I'm excited to begin.
Thanks for having us.
No, for sure. I thought we'd start, if it's okay, Jack, you introduced this investment framework last quarter. What inspired it? Love to hear, you know, your thinking around that. You heard some questions from the audience that's somewhat relevant to it. I'm curious, does it still allow for what I call, you know, breakthrough to happen within Block like we've seen over the last decade or so?
Yeah. first, it's really hard to follow Jamie Dimon.
Yeah.
I didn't know that we could cuss on stage, so that opens the door for everything for me. Thank you for spending some time with us and allowing us some time. The main thing is we wanted to be able to articulate how we make decisions around our investments in one single sentence that anyone could remember in the company and our investors and our analysts could also articulate back to us without having to think that much. That was the ultimate test. The reason that was important is we wanted to distill what we were trying to do from an investment perspective and have a significant attribute... have a significant focus on making sure that we're doing the right thing, that we have a checkpoint on it.
The thing that we always want to maintain is that we're customer first, and we're focused on that. Everything else follows from us being able to serve our customers, that they wanna stay with us, that we build a resilient relationship, and that resilient relationship creates a word of mouth that enlarges our customer pool and the size of our the markets that we're in. The second is that we heard a lot of feedback since being a public company. We borrowed a lot from our predecessors, and so can SGI and Microsoft and Google about how they did things, and specifically the conversation around SBC and the cost of stock-based compensation.
We wanted to reflect that it is a real cost in the company, and we wanted to measure ourselves against it. We came up, you know, with what we thought was an industry standard way of describing that which is Rule of 40 over Operating Income, which accounts for SBC. That you truly know and we truly know how we, you know, what our costs are and how we're delivering innovation against that. We're only going to increase the resilience of our customer base or their desire to or the more desire for more customers if we continue to be innovative. We want to make sure that we have a check on our own efficiencies. You know, we had this principle back in the day when we started the company, start small.
Some of the follow-up to it over some time was stay small as well. As you grow, you get, you know, bigger, and you start doing things just out of momentum instead of out of need. That Rule of 40 on OI handles the checkpoint on do we actually need this, and how do we stay small but continue to do big things and be more innovative? Technology is certainly going to help us in this regard. I'm sure we'll be talking about it, but like the field of AI, which I'm sure all of you have heard and been on the tips of your tongues, more so in this quarter than any prior quarter in history, which is crazy 'cause just two last quarters, you probably didn't hear the term from most companies.
I'm so thrilled that there exists an open source model competition for the space because it means companies like ours, whose first priority is not building AI models, can actually compete on a level playing field, and we can compete because we have very specific data around our sellers and around consumer financial activities. That is the true heart of what makes any AI model great, is that data. When I saw that leak from Facebook and how quickly the community iterated on it, getting to the point of being past GPT-3 and approaching GPT-4, and the fact that it's completely open and we can self-host it, I'm like, "Damn, this is phenomenal." This is a huge boon for our company and company like ours, where we don't need to focus on just building pure AI technologies.
We have a huge labor force in the open source world that we can push our data to and get the same outcomes, if not better, in our space, which is finance.
Great. I do wanna dig into generative AI a little bit more, but just to round out the conversation around the investment framework, just the Rule of 40 and the, and the pathway to get there, can you elaborate a little bit more on that, especially around operating leverage, not only this year, but longer term?
I can start on that. You know, what's more important than achieving Rule of 40, Tien-tsin, is sustaining Rule of 40. You see some of the most impactful, scaled, profitable companies in the world have sustained Rule of 40 year in and year out. That's not only through seeking discipline and efficiency and operating leverage, but that's making well-placed high return investments to build new revenue streams to compound growth over time. For us, it's important to balance both efficiency and operating leverage, which I'll go into in a bit, but also with investments against this immense market opportunity that we're pursuing. This year, from an operating leverage standpoint, you know, we've guided to margin expansion, both on an EBITDA and Adjusted OI basis, and there's two primary ways that we're seeking efficiency. First, hiring.
We're deliberately slowing and meaningfully slowing the pace of our hiring. As Jack spoke, our metrics now include SBC. Our managers, our general managers across the company, as they look at their P&Ls, as they look at their targets, have the ability to weigh personnel expenses in an apples to apples way with other investments that they'll be making across sales and marketing, customer service, et cetera. Secondly, sales and marketing. We pulled back spend in the first quarter, and we still saw customer acquisition growth in each of our Square and Cash App businesses because we're orienting the mix of our spend to higher ROI areas, more proven areas, less experimental for now. Those are the things that we're gonna be pursuing as we look for efficiency and as we seek that margin expansion.
We raised our profit guide in this last quarter for the year, even in the midst of this macro uncertainty, and even in the midst of a slowdown, intend to hit that higher profit guide. Now longer term, in addition to hiring and sales and marketing, what we're looking at is broader corporate overhead expenses. Everything from software and data, real estate, travel, other discretionary expenses that don't necessarily impact growth, but they help us operate in a small way. They help us be lean, and they help us be efficient. Those are the areas that we're gonna be pursuing as we look to not only achieve Rule of 40 over the long term, but sustain it, importantly.
Okay. Good. Digging into the business and ultimately up into the tech, the investor perception is that Block is a very cyclical company, right? That you're over-indexed to SMBs, you're over-indexed to lower income consumers. What's your response to that, and how cyclical is the business?
Well, you have to start somewhere.
Yeah.
Our start was the fact that a lot of SMBs and lower income individuals were, like, left out of the economy because not because banks wanted to not have them as customers, but they may not have had the means or the technologies to assess their own risk and their ability to bring them in in a safe way. The only reason we're here as a company is because we were able to bring 99% of merchants who applied to accept credit cards got through our system, and we changed from a model that was traditional in the space, which was a credit check on the merchant, to one that is transactional and looking at every single transaction, looking at behavior and taking some bets on people.
We had a very similar approach with Cash App. This becomes more of a function of the data we have and the data we can access as people transact in different ways within our ecosystem, and then the models that we build around them. Those things are always evolving. They're never, never static. I think we've proven that we can move from an SMB independent, you know, someone at the, at the farmer market selling flowers to a multinational, multi-location, retailer or restaurant or service organization. You know, we have desire in the Cash App space for higher net worth individuals to use Cash App. Why? Because it's super simple, and it's super easy, and it's clean and fresh.
They have kids, and they can, with 1 tap, now give a card to their kids and also control it in a way that you just can't find that experience with most major retail banks. Our strength is designing something down to its base essence and just making it feel easy so that we're not taking anyone's time away, and they can just focus on what is most meaningful to them. I do believe we have shown and proven an ability to move more and more up market in both businesses, and that will continue to be the case.
The big challenge for us going forward is, you know, we're a financial institution that is regulated in the same way, as Jamie spoke to, often through proxies and our partnership with JPMorgan Chase and other banks, but sometimes directly. It means that we can't act like an internet company. We can't just launch an app in every single app store in the world, and expect people to find it and use it. We actually have to have a banking relationship within each market. It really slows down our global adoption. There are technologies out there that we're very interested in pushing and building, which enable us to be more like an internet company and actually release an app that has global value and global usage. Those are some of the...
That's represented by some of our future business units, which we can talk about.
Let me also share a little bit of what we're seeing, in terms of our business performance in real time. you know, of course, our business performance is composed of not only our execution, but the health of the underlying consumer and small business. From a Cash App perspective, you know, continuing to see healthy trends in Q1 in April. We had $20 million Cash App Card, that's our free debit card, Cash App Card customers in the month of March that grew 17%. Our overall active is growing 17% year-over-year, and our Card active is growing faster. Importantly, spend per active grew year-over-year, both in Q1 and in April.
Even in the midst of a potentially challenged consumer, we believe that Cash App has the ability to gain share of wallet in this environment. From a Square perspective, as we've talked about for some months now, we believe we started to see a macro deceleration, macro-related deceleration from about the mid-November timeframe through Q1. What we've seen quarter to date, so the first seven weeks of Q2, is Square GPV grew 12% year-over-year, where we saw an improvement in May so far in May, relative to what we saw in the month of April. If you think about the components of our growth, there's really three key components. There's new customer acquisition, which as I mentioned, has continued to be strong, even in the midst of pulling back spend.
Secondly, it's churn, where we've continued to see actually stable trends from a Square perspective over the past six months with respect to churn. Third, it's GPV per seller or retention per existing seller, and that's where we've seen the moderation in the growth rates from sort of mid-November into April. When we think about the broader economy, this pattern directionally, you know, is consistent with what we've seen from the larger banks, whether it's JPMorgan or Bank of America. When we think about the proxies in our business that we look at, the number of unique cards visiting our sellers or the spend per card at our sellers, what we've seen is a deceleration consistent with that macro slowdown sort of from November to April. Ultimately, the way we operate our business, though, is on a gross profit basis.
We're sharing all these trends around GPV for transparency, but when you look at gross profit, you see not only payments volume, but you see software, you see financial services and banking, you see the full breadth of the 30+ products that we offer these customers. Ultimately, that's what provides greater value to those customers in these times, and that's what provides greater resilience to our business in these times.
So digging into Square first, if that's okay, right? 14 years ago, basically invented the market. We've seen a lot of competition come in. I'm curious from here with the 30 products Amrita just talked about, is there still a lot of room for innovation on the Square side? Is it gonna be more incremental and focusing on distribution and marketing, that kind of thing? I'm curious, what can Square do better here?
I think, you know, we had some ideas in the past as we built this. We were very, very much technology-focused and technology-first in a world that was mainly traditional sales focused. We saw a lot of predatory practices in those outbound sales practices, and that really turned us off from doing much with sales at all. I think our competitors have like seen that and definitely taken advantage of the fact that we have a gap specifically in outbound sales. We're figuring out more of a balance there and not being so stubborn about, you know, being technology first and focused, but doing so in such a way that isn't predatory, which we still see our peers doing.
We have competitors that are locking people into two-year contracts, and it looks really good in the first month, but after month two or month three, if you talk to these sellers, they wanna get out, and they hate it. It's a question of like, making sure that we have that visibility, and that consideration. Ultimately, I don't think that is the winning play. I think it still has to do with building technology and building products that are fundamentally new and do something extremely valuable and people wanna stick with. We certainly need to do better at getting our foot in the door.
Once people are in, like, we have a lot of love and a lot of resilience in our relationships because of the quality of our products, because of how innovative they are, which we would equate to being simple and straightforward and self-serve, and that they connect with this much broader ecosystem. I don't need to have a relationship with seven vendors. I only download one app, and I'm done. I just flip switches. As we now bring in these new technologies, such as AI and expand past deep learning algorithms, we get even stronger potential and stronger relationship with those folks. I think there's a ton of innovation within the seller space because they have to. They have to be creative. They have to be flexible. The number of restaurants today that also are...
like, have a retail aspect of what they do just so that they could survive through the past few years is immense. If we're a company that only serves restaurants like some of our competitors, they either have to hook that up or they fire that restaurant company, and they go to a retail company because that's where the money is for them. We're both. We're providing services for all verticals, and we provide all the fundamental business services as well.
I think that's it's a long-term model, and it's a slower development model, but I think it has a lot more depth to it than what we see in our peers, and it's purely a function of how innovative we can be and how creative we can be about the tools and the quality of those tools.
Yeah. Just to build on that, just to round it out, we always debate this, depth versus breadth. You just talked about it, Jack, The success started out horizontal. You've added a couple verticals, like you mentioned restaurant and retail, it is starting to blur, right? It may not matter. Of course, you've moved up market as you've alluded to, Where are you placing your bets? Is it more on going deeper with the seller, or is it about adding more breadth and surround services?
I think the Holy Grail is doing both. Like we-
Okay.
We should be presenting the, as much breadth as possible, but really quality depth for the things that truly matter. Having an API for where we are not, both in the breadth category but also the depth category. Like, if we're able to pair someone with a third party that goes through our API or with a developer that can build it very quickly because our API is so simple.
Mm-hmm.
everybody wins. We don't, you know, need to prioritize one versus the other. We're actually doing both. We get all this insight in terms of this is how this is where we're failing, this is where there's gaps, this is where people are filling in with an API, and we can actually build that or acquire companies that have done that. We just get all this information to make our next move about what is the next most critical thing to do, both in the Square side and also on the Cash App side.
We see it play out in the numbers too. You know, our vertical points of sale, which really provide immense depth, but we have three of them, so breadth across different categories, grew at 42% year-over-year in the first quarter, 2x-3x faster than the overall Square, you know, seller growth rate. Within that even, restaurants grew even faster amongst our three product offerings within vertical points of sale. Our up-market sellers with restaurants are attaching at six products across our ecosystem. We've got many more that could serve them, but six products on average, which means that we can have more attentive relationships, we can serve them in more ways, and ultimately, grow with them as they grow their business.
These vertical points of sale are important and a deliberate part of our strategy, both in growing up market and broadening the ecosystem.
Good. It's fun to watch, and obviously it's tangible, so it's definitely close to my heart, which is why I wanted to ask about it. I know we're already at 15 minutes. Time is flying. Cash App, on the product side, we heard from Jamie, right, Fintechs and what's happening with tech and banking. I think the mission statement has been clear in terms of what's driving you, but who's the incremental user today, right? Post-pandemic. What are they using Cash App for, and what are the use cases that you see that you're running towards that can really drive a lot of growth and monetization?
That's where I think our ecosystem model, like, really scales because they come in for different reasons.
Yeah.
Like, the predominant use case is always going to be peer-to-peer because it's the simplest way to send money to anyone. Increasingly, that'll be more and more around the world as we build those other solutions for it. When they see that or they receive money from someone, and they see that they can save money, they can get a card, they can use an ATM, they can deposit cash, they can buy stocks, they can buy Bitcoin, they can get their paycheck direct deposited, then it becomes more and more progressively like a banking relationship. That's exactly where we want to be, which is like come in any way you wish. You may have seen your friend's Cash Card.
You may be, you know, a son or daughter of, you know, your parents who use Cash App, and now we have the Families feature. You may have seen that we're, you know, the easiest way to buy fractional shares of a company, so you download it for that. I don't know how long it's been, but we've been... Cash App is quite young. It's only, what? Seven or eight years?
Yeah.
For the majority of that, we've been the number one finance app in both app stores.
Mm-hmm.
Beating all the banks. It's because of that pure utility, and it's really up to us to continue to find those adjacencies in the financial space that that ecosystem gets even more and more rich, and it mirrors what people have done with Square, is I just need to download an app, and I have a whole bank. Like, it does even more than that. It does it in ways that I really control and I can personalize. It feels good. They have an apparel line that I can buy a sweatshirt from. Like, it's fresh and new, and our challenge is now, like, getting to an older, higher net worth audience, and we're already seeing that.
Where we're getting friction points is, you know, our limits. Like, people wanna do more with more money on Cash App now. Again, that's just iteration. That's not the real innovation. There'll be more and more products and features that enable entirely new audiences to come on board.
I need some merch, Jack. Next time bring some merch for us.
As long as you wear it in front of, Jamie and the whole crowd here.
I wore the uniform this time just to make sure I'm safe with my Friday paycheck. Bringing it to the numbers then. Let's decompose that, and then I wanna talk about Gen AI and some other things. I wrote down... Right, I think the inflows framework is really good, right? To think about the potential for Cash App. Money comes in, inflows up 8%, monetization rate up 22 bits to 1.41%. You're making, you know, quite a bit on the spend that's coming in, and then active's up 17%. How do you see those components evolving here as you've learned so much more about the user? Jack, you were talking about simplicity, right? This seems like there's a lot more potential.
I think there's a lot of opportunity across each of those three components. We think about our Cash App gross profit opportunity composed of three key drivers. The number of actives in our ecosystem, which was 53 million in the month of March, up 17% year-over-year. That's very much driven by our core network effects through peer-to-peer. That's not only the actual transmission of fiat, but the peer-to-peer that's embedded throughout the ecosystem. A number of our products have those elements, those social elements embedded. We complement the network effects, the you know, inherent virality of Cash App through our marketing channels, where ultimately we're gonna have an ROI focus, we're gonna have discipline. We've talked about that.
The combination of those network effects in our marketing and social channels are what drive growth for actives, and we see continued growth opportunities ahead. The second key piece is inflows per active. This is the amount of money that those actives bring into their Cash App account. In Q1, it was $1,136, up 27% year-over-year. This is really a product of our product adoption. How many of our products our customers are taking on, and the engagement therefore they have as they move their money around our ecosystem. We have a lot of nascent financial services products in our ecosystem, whether it's Savings, our fastest growth product that we just launched in January, Borrow, which is the ability to get a couple of hundred dollars over a period of a month or so.
Taxes, direct deposit, we have more on the way. Driving product ado-attach is a key way that we can drive inflows per active growth over time. At about, you know, $4,000-$5,000 in a given year, that inflows per active is only about a tenth of the average U.S. income today. We see an opportunity to grow that over time. Now, we are growing with younger customers. We've had a lot of popularity with our families offering with Gen Z. As we see a mix shift to younger customers, we may see pressure on inflows per active in the near term, but longer term, see a huge growth opportunity as they grow their profile.
Ultimately, monetization rate is really about our ability to provide value and then flex pricing from time to time. We adjusted pricing about a year ago, so we're now lapping that, and we'll expect to see monetization rate normalize for a period of time. Longer term, you know, we have a number of products that are free in our ecosystem, and as long as we're providing value across the entire value chain, we have the ability to revisit pricing in the future as well.
Okay. Good. Let's just wrap it all together, right? You've got a consumer ecosystem, right? You've got a seller or a merchant ecosystem. You brought in Afterpay to connect those, you know, with some commerce. I know I've said this before, probably on stage, Jack, but I'll say it again, right? I always remember one of the earlier presentations you gave, you put up the Walt Disney chart and his vision around the ecosystem of connecting all of the properties of Disney, which had so much foresight, right? You've been thinking about this ecosystem concept for quite some time, obviously. Here we are. You've done the Afterpay deal. You've got scale on both sides. Is the potential to connect those two, is that the moment now that we should be asking you more about this?
Yeah. I mean, it's definitely coming together. Like I think we've been a little bit slower than I'd like with our strategy. We're now, like, doubling down and refining that and making sure that, like, we're putting our best face forward. I think the seller component is very clear. Like, you turn this on and you get more sales. Like, it has to be as simple as that. On the cash side, I wanna have us make sure that we focus on the single thing that's most important, which ultimately is gonna be Cash App Card and driving more usage of that. Because we have all these little Lego pieces that fit on top of the Cash App Card, like these Boosts and this Afterpay functionality.
Within the app, we have this new area, which is super clunky right now, called Discover, that people right now are just using to find the people they previously paid or the people that they wanna pay in their address book. Eventually will be the merchants around them, mostly Square merchants around them. Ask for permission to, you know, to show that up and to actually show items from merchants around you, but also, you know, online, which, you know, brings in more and more of the Afterpay and the larger retailers. That's gonna be a focus of, like, having the inventory, but more importantly, making it relevant so that people want to go there every single day.
That's ultimately what we're going to judge ourselves on, is have we created a new tab that people wanna visit every single day because they find something that they want to engage with or they wanna purchase. This is not a new path. This is a well-trodden path. This is a search engine, but mirroring it with our data. Then you can imagine other models within that, including advertising, where I can pay for placement within that. Because we are such an integral part of their financial lives, we think there's a huge opportunity around the commerce part and being the front-end commerce part. You hear this in other folks talking about the everything app and whatnot, and the success that China has had in this. That's basically what this is.
We have a very strong start because we have the financial relationship with the person already. It's not a superficial relationship. It's very, very resilient.
Good. Good. We're what? At the five minute mark. Time is moving quickly. Tech waves. You talked about generative AI. To move faster and achieve some of the goals that you just laid out there, what sort of big tech waves are you watching? We'd love to hear a little bit more about generative AI, but anything else that you're, you know, you're prioritizing strategically from a tech standpoint?
The two big things are open protocols and AI.
Please.
Open protocols is, are things like Bitcoin. A lot of folks in this country and in Europe see Bitcoin, and they see an asset that has a price that fluctuates. If you look at the Global South, you look at Central America, South America, and Africa, you actually see it what it truly is, which is a money transmission protocol. This is the Internet having a protocol like HTTP for the web or FTP for files or SMTP for email for money movement. This was always a desire for the Internet. If we had started Twitter after Bitcoin had been invented and launched, we would not be dependent upon an ad model.
Ad model came out because the internet didn't have a payment mechanism, it didn't have a payment protocol. That's what Bitcoin is. It is not just about the current asset price. That's how we're treating it. That's why we're building TBD, is we're building a protocol so that anyone in the world can build an on and off ramp that is local to their country, turn on whatever controls and protections they want and use Bitcoin as the ultimate transport mechanism. For us, this means that we get into the space of global remittance, but we do it with a cost basis that is lower than anything possible today because we're using Bitcoin as a transmission protocol. The customer experience is they're just using their own local fiat. They never consider the word Bitcoin.
They never consider the concept of a stablecoin. It just automatically and magically transmits, and they can use it immediately. Open protocols like that are huge to me. When you're pairing it with AI and generative AI, like, I think there's a ton of hype right now, and I think there's a lot of companies being started that are going to fail because of that hype. I think the technology industry is very trendy and very fashionable and jumps from one thing to the next, to the next, to the next. It wasn't till long ago that we were only talking about Bored Apes and crypto and NFTs, and now we're talking only about AI and how it's going to kill us. Like, it. There's always some truth in all these things.
I just would caution, like, of any company that's approaching it from a technology perspective instead of a use case perspective, and that what is the use case you're trying to solve in a more creative way, and what technologies can you use to solve it in a more creative way? For us, that means more accessibility, that means greater efficiencies, that means that we can act more like an internet company ultimately. As I said before, I was just overjoyed and somewhat relieved that the open source community has a leg up in AI for the sake of humanity, but also for our company, because, again, it levels the playing field, and we don't need to be an OpenAI to compete in the space that we wanna compete in, which is finance.
Before this occurred with open source, I assumed that we would always be behind because of the need to be as strong as OpenAI in the AI space. That is no longer the case and it's completely open.
Good. I think we're probably out of time to take questions. I wish we had more time. Time flies. I always say this, what? A minute and a half left. I'll ask the usual question I like to end on, which is sort of what's misunderstood or underappreciated about the business. You know, this vision is still the same, right, Jack? You've got a vision on the tech side that you've been right on. You haven't cut heads. You've been innovating. What's misunderstood as you've been talking to investors? I'd love to hear your thoughts on that.
I think the biggest thing continues to be the power of an ecosystem model. Like, it's very rare that people are able to pull this off and I feel very grateful and fortunate and I can't believe that we were able to do it with two, and I do believe that we'll be able to do it with two more. I think, you know, when we start showing and proving and not just telling you the virtues of this, like, that I think is still misunderstood, at least in our space. We're a very young company. We're 14 years old and I'm really proud of what we've done.
There's so much more to do and we're facing challenges that companies much larger than us are also facing, and it's just up to us to figure out how to, again, like, build resilience. That's really what I'm focused on, resilience through innovation and making sure that we can ultimately become more like an internet company and we can serve a global audience instead of being limited because of these, you know, historical relationships that we've had to work with.
From my perspective, the opportunity we're going after is immense and important, which is, you know, $200 billion TAM, which since 2017, when it was $60 billion, we've grown by more than 3x through our product velocity, through launching new products, through growing new ecosystems, and I think that opportunity for us continues to exist. We're only less than 5% penetrated in that TAM. The opportunity size is immense. We have an opportunity to take share, and over time, I think we have an opportunity to grow that addressable market even larger.
Great. We'll end it there. It's a joy to cover the stock. It means a lot to me to have both of you here, and maybe next time I'll have the courage to wear some cooler shoes as well. Thank you for the time.
Thank you.
Thank you.