Block Inc

NYSE:SQ

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen. And welcome to the Square Second 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.

[Jason Lee, Head-Investor Relations]

Hi, everyone. Thanks for joining our second quarter 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 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&A, we will take questions from our sellers in addition to questions from conference call participants. In addition to our shareholder letter we have filed a press release announcing our definitive agreement to sell Caviar, our food ordering platform to DoorDash. This transaction is subject to certain closing conditions, including regulatory approvals. 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. 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.

[Jack Dorsey, Chief Executive Officer]

Thanks, Jason. Hello, everyone. A few remarks from me before we turn it over to Amrita for some details and then your questions. So we’ve been able to accomplish something very few companies have, the creation of not just one, but two incredible customer ecosystems at scale. We started the company by creating and building a seller ecosystem. We did it again this time for individuals with the Cash App. Along the way, we’ve seen a lot of opportunity to strengthen both of these ecosystems, but those opportunities require more focus and more investment. To increase our focus, we decided to sell our Caviar business to DoorDash. This enables us to focus on serving restaurant and food sellers through a platform approach, specifically our orders API and Square for Restaurants.

DoorDash was an obvious choice for us because of our pre-existing partnership through orders API and Cash App. Both companies have an alignment of interest to strengthen our partnership. This decision will also allow us to increase our investment, specifically in seller. Our initial focus will be on go-to-market investment, inclusive of hardware and sales and marketing. Given our payback periods and ROIs for multiple products within the seller ecosystem, we see compelling opportunities for more growth.

The Cash App ecosystem continues to exceed our expectations. In just three years, Cash App revenue performed basically $0 million to $135 million, excluding Bitcoin. We love you, Bitcoin. And we saw 3.5 million customers use Cash Card in June, typically using it to purchase multiple times per week. Our seller and Cash App ecosystems have incredible roadmaps ahead to deliver on our purpose of economic empowerment. And every time we tighten our focus, we get stronger. These moves will enable us to move faster and much better.

And with that, I’ll turn it over to Amrita for some details.

[Amrita Ahuja, Chief Financial Officer]

Thanks, Jack. There are four key highlights, which I’d like to call out this quarter. First, we continue to drive impressive revenue growth at scale. Second, we continue to see strong returns on sales and marketing spend and see further opportunity to invest at attractive returns in our seller ecosystem. Third, Cash App has grown rapidly and is now a meaningful contributor to our overall revenue. Fourth, we believe the transaction to sell Caviar will improve our focus and drive greater investment in our seller and cash ecosystems.

Let’s expand on these points a bit. First, we drove strong revenue growth at scale. Total net revenue grew 44% year-over-year to $1.17 billion in the second quarter. Adjusted revenue grew 46% year-over-year to $563 million. We saw broad-based momentum across both seller and Cash App ecosystems driving our results. As a reminder, we lapped a few events, which drove the tougher comp on revenue growth this quarter relative to the first quarter of 2019. We lapped the acquisitions of Weebly and Zesty, which closed in the second quarter of 2018. These acquisitions contributed two points to total net revenue growth and three points to adjusted revenue growth in the quarter. And we also lapped the pricing change on Cash App and Instant Deposit.

Second, in our seller business, we continue to generate strong return on investments from sales and marketing, with further opportunity to scale at attractive returns. We’ve seen payback period trend towards three quarters with continued positive revenue retention. This results in a 3x to 4x return on investment for a new seller cohort within three years of onboarding. In April, we launched a marketing campaign to increase brand awareness for Square’s ecosystem of products to help sellers manage and grow their business. We are encouraged by early returns from this campaign, including improved top-of-funnel metrics around awareness, which has led to growth in sign-ups.

Third, our Cash App ecosystem has driven meaningful monetization and attractive unit economics. We see strong momentum and durability across three key vectors, the network, engagement and monetization. Cash App delivered $135 million in quarterly revenue, excluding Bitcoin. While we are improving the efficiency of our cash ecosystem, we continue to invest given the rapid growth of the platform and compelling unit economics. What we see is, one, low and stable acquisition costs for new customers, even as we scale in the mainstream populations; and two, greater engagement and monetization for active customers across multiple revenue streams, driven by increased attach rates on key products that provide daily utility, and as we launch new features, we see further opportunities to cross-sell into large and growing – into our large and growing customer base with minimal incremental acquisition costs.

Finally, we have entered into an agreement to sell Caviar, which will allow for improved focus and greater investment in our seller and cash ecosystem where we have seen attractive returns. With the pending sale of Caviar, we are maintaining our full year 2019 guidance for 43% adjusted revenue growth year-over-year and 60% adjusted EBITDA growth year-over-year at the midpoints.

We will update our guidance after the close of the transaction. Similar to prior quarters, we intend to reinvest outperformance back into the business to capture the long-term opportunities ahead of us. We expect most of our incremental seller ecosystem sales and marketing expenses to land in Q3 and the early part of Q4 when we know businesses make decisions and spend can be more effective prior to the holidays. We expect these investments to benefit us and drive growth in the future.

I’ll now turn it back to the operator to start the Q&A portion of the call.

[Operator]

[Operator Instructions] Your first question comes from the line of Darrin Peller with Wolfe Research.

[Darrin Peller, Wolfe Research]

Hey guys. Thanks for taking my question. Listen, I just want to start off on the Cash App, just to get more data points around how much is being monetized, and maybe start off if you could help us understand the curve and the maturity of that monetization? Is it 20 – I mean you talked about Cash Card being about 23% of the actual Cash App users, where is that? Is that something that could be much higher from here? And then maybe you can help us understand the breakdown of revenue across the Cash App between the different sources you highlighted, whether it’s the Cash Card or others? Clearly, it seems like it’s growing well, just curious how much room it has. Thanks guys.

[Amrita Ahuja, Chief Financial Officer]

Thanks so much for the question. So we are very pleased with the performance that we’ve seen from the Cash App team. Their focused, first and foremost, on growing the network and growing engagement and daily utility on Cash App, and we believe and we’ve seen that lead to monetization. And Cash App has scaled from negligible revenues three years ago to now an annualized rate of over $0.5 billion in revenues. So we can unpack that a little bit for you. I think you were asking specifically about how the opportunities with Cash Card and the ability to grow that attach rate in those revenue is associated with Cash Card over time. Maybe if you take it back one step and look at overall monetization for Cash App, two years ago, when we were very early in the life of monetization of Cash App, we disclosed, I think, this is in the second quarter of 2017, that over one third of users monetize. And that was pre-Cash Card.

Now we’ve seen significant growth in that number with the addition of these new monetization and engagement levers like Cash Card, like Bitcoin and a number of other levers. With Cash Card, in particular, we disclosed the 3.5 million actives. We continue to see growing attach rate for Cash Card from period to period, and we think we’re in the early days of that. We’re also seeing really strong metrics around usage and engagement with multiple transactions in a given week for everyday purchases. So this is a really great proof point for us around customer engagement and driving retention and opportunities for cross-sell into this large and growing audience into the future.

In terms of just – I think the last part of your question was around breaking down revenues for Cash App. We have half a dozen revenue streams and we believe that we are in the very early days of that. The two biggest around Instant Deposit and Cash Card, and we’ve got four other growing revenue streams. And given we’re in the early days and this team has demonstrated strong product velocity, we envision many more into the future.

[Darrin Peller, Wolfe Research]

All right. Thanks guys.

[Operator]

Your next question comes from the line of Bryan Keane with Deutsche Bank.

[Bryan Keane, Deutsche Bank]

Hi, I just want to ask about Caviar, if we could get any sense of revenue or EBITDA. I’m guessing the EBITDA margin for Caviar is lower than the overall company average. So I’m trying to think about that and maybe the growth rate of those – of revenue and EBITDA, how fast is it growing? And then if we’re going to reinvest those proceeds, where exactly inside of Cash App are we thinking about reinvesting those? Thanks so much.

[Amrita Ahuja, Chief Financial Officer]

Thanks for the question, Bryan. So let me help you break it down a little bit on Caviar. We’ll be able to share a lot more with the relevant financial statements, including and excluding Caviar, upon the close of the transaction expected to happen later this year. But just to give you a little bit of boundaries as you kind of model the business. From a revenue scale perspective, Caviar is the second largest component of our subscription and services revenue stream where we did $251 million in revenue in the second quarter. We’ve now disclosed key revenues for Cash App, which was the number one driver of our subscription and services revenue stream. Capital is the third. So you can kind of benchmark within there, backing into a figure within range for Caviar.

From a margin perspective, as a delivery platform, Caviar has lower gross margin profile than the remainder of our revenue streams related to subscription and services. There are ongoing costs associated with Caviar, including fees for couriers and the revenue share with restaurants that have made it the largest component of subscription and services-based cost. But again, we will update you on – in the future upon the closing of the transaction on further details there.

[Jack Dorsey, Chief Executive Officer]

And in terms of the reinvestment of proceeds, you mentioned Cash App. Cash App is pretty amazing network effect right now, and we benefit a lot from them. So a lot of our focus, as we think about these two ecosystems between seller and cash, is going to be on go-to-market and seller. We think there’s a lot of opportunity based on our payback periods and return on investment within multiple products within the seller ecosystem. And that will be inclusive of hardware, but also more we can do with sales and marketing. So as we’ve been looking at the business and looking at a new world where we do have the ability to focus on just two ecosystems instead of three, we’re really compelled by a number of the opportunities on the seller side and continuing to build out more and more of the Cash App roadmap, which continues to address some critical needs the people have in accessing the financial system.

[Bryan Keane, Deutsche Bank]

All right. Very helpful. Thanks guys.

[Jack Dorsey, Chief Executive Officer]

Thank you.

[Amrita Ahuja, Chief Financial Officer]

Thank you.

[Operator]

Your next question comes from the line of Tien-Tsin Huang with JPMorgan.

[Tien-Tsin Huang, JPMorgan]

Thanks. Good afternoon. Just wanted to ask on GPV and your plans to invest more in the seller ecosystem like you just said. I know GPV growth in percentage terms gets a lot of attention, but you’re still adding a record notional amount of GPV, if I’m doing the math right. So my question is do you feel confident that you can keep adding whether five billion on volume a quarter and can that actually accelerate with the seller ecosystem investments that you’re talking about? Thanks.

[Amrita Ahuja, Chief Financial Officer]

Thanks for the question Tien-Tsin. We are focused with these investments on driving both top of funnel through awareness and activations, along with cross-sell across the ecosystem. GPV picks up one piece of one ecosystem. It picks up primarily a payment piece of the seller ecosystem. Keep in mind, as people think about GPV, that we don’t include things like Cash App GPV in the figure, and we also don’t include the other revenue streams around subscription and services as a part of GPV, which is why we, as a company, manage the business to our revenues and we think about revenue growth when we’re driving investments.

Revenue grew 46% in the quarter and that fully – adjusted revenue grew 46% in the quarter to $563 million. That really captures the full breadth and value of the ecosystem. Within GPV, some of the pockets of growth that we’ve seen that we’re very encouraged by include around our larger sellers who now are more than half of our GPV mix. Mid-market sellers, which are the largest sellers that we serve with over $0.5 million of GPV, also grew and actually grew at the fastest rate, which is 45% year-over-year. And we believe we have multiple levers of growth ahead on GPV, including across the rest of the business. And a lot of that is related to some of the newer payment channels that we have developed that are growing faster than the base GPV amount. So think about things like our vertical point-of-sale offerings around retail and restaurants or developer platform in omnichannel products. But again, I would anchor you to thinking about the overall revenue growth for our business is that captures the breadth of offerings that we have for our sellers and individual customers.

[Tien-Tsin Huang, JPMorgan]

Got it. Understood. Thank you.

[Amrita Ahuja, Chief Financial Officer]

Thank you.

[Operator]

Your next question comes from the line of Dan Dolev with Nomura.

[Dan Dolev, Nomura]

Hey guys. Thanks for taking my question. Just a quick housekeeping question. The Eventbrite, is that included in GPV for this quarter?

[Amrita Ahuja, Chief Financial Officer]

Thanks for the question Dan. Eventbrite is still in testing phase, so I wouldn’t think of that as a material contributor to GPV in the second quarter. We are hard at work on building out a long-term solution, omnichannel solution for Eventbrite and expect to launch in the back half of this year.

[Dan Dolev, Nomura]

Got it. Maybe a question for you and maybe for Jack, too. I mean, we’ve been getting – we’ve been doing a lot of work on the Cash App and the ecosystem, but can you maybe give us like one concrete example, Jack, of how the ecosystem kind of helps you get both sides of the transaction, both the sellers and the consumers, which I believe is sort of the holy grail of this whole thing?

[Jack Dorsey, Chief Executive Officer]

I agree with you. We do see a lot of opportunity there. Like, so our first focus is to build the individual ecosystems, the seller ecosystem and the Cash App ecosystem. There’s a lot of strength, and both ecosystems are addressing critical needs. So within seller, it’s payments and register and capital and appointments, and Square for restaurants and Square for retail and whatnot. On the developer platform, on the cash side, it’s everything from peer-to-peer to the Cash Card to Bitcoin to Instant Deposit to a host of other services that help people on a daily basis, like Direct Deposit as well. So we have seen some crossover between these two ecosystems, and we do think that there’s a lot of power in connecting them. We have been paying some of our payroll customers through the Cash App, which is beneficial to both the seller and the Cash App ecosystem.

Some time ago, we started paying Caviar couriers through the Cash App, which is beneficial to Caviar and soon to be the DoorDash ecosystem and also the Cash App ecosystem. And we have been doing more and more consideration around Boost as well and where that fits in to that ecosystem as well. So we do believe there’s a ton of connections between these two. And some of this focused investment, we’ll definitely be answering that question, making those connections much, much stronger.

[Operator]

[Operator Instructions] Your next question comes from the line of Jason Kupferberg from Bank of America Merrill Lynch.

[Jason Kupferberg, Bank of America Merrill Lynch]

Hey guys. So you did, as we’ve become accustomed to seeing, you did beat the high end of the revenue guidance for the second quarter here. Now typically, historically, that’s been accompanied by a raise in your annual revenue guidance. We did not see that this quarter, so I just wanted to get an understanding of what the thought process is around the second half and where you may have a little bit of uncertainty/caution perhaps that might have led you to decide to not change the full year outlook despite another very strong quarterly performance.

[Amrita Ahuja, Chief Financial Officer]

Hey Jason, thanks for the question.

[Jason Kupferberg, Bank of America Merrill Lynch]

Hey, Amrita.

[Amrita Ahuja, Chief Financial Officer]

So, with respect to the revenue raise, I'd urge you to remember that this quarter, we've announced the transaction with Caviar. And so we will update you post the closing of this transaction, which we’d expect to happen later this year, with respect to guidance for the rest of the year. Also remember, we raised guidance last quarter by $30 million or two points of growth, which was obviously more than the beat that we had last quarter. And finally, recall that, of course, we're driving growth for the long term. And so the investments that we're making in the back half of this year, we expect to drive growth for us into the future.

[Operator]

Your next question comes from the line of Pete Christiansen with Citi.

[Pete Christiansen, Citi]

Thank you for taking my question. Jack, can you – I appreciate the refocus into the core ecosystem here, but can you give us a sense, at least, the competition seems to be getting tougher with other cloud POS players, but on the seller side. Is this more of a response to things like that? And perhaps maybe you can at least qualitatively give us a sense of how retention is holding up in the seller channel? Thank you.

[Jack Dorsey, Chief Executive Officer]

Yes. I’ll take the first part and Rita will answer the second. We – I mean, really, this is not looking externally, this is looking internally. We just see a ton of opportunity based on our – the strength of our payback periods and the return on investment of multiple products within the seller ecosystem particularly. And we think just doing some small things like a focus on go-to-market through hardware and also through sales and marketing will have very, very good outcomes. So we want to pull the thread on that. And we do believe that the thing that still sets us apart from all of our competitors is the cohesiveness of our ecosystem. The fact that I can come in for one tool and see an array of other tools that will help with your second question, which is around retention. We do have a number of sellers who use multiple products at once and find the ability to just download one app and, suddenly, you have an entire universe of tools to solve all the critical needs that one would have right there. It's very compelling, very easy and very fast and something that continues to be a competitive differentiator for us.

So, we now get the opportunity to really focus on these two ecosystems, and we see a lot of opportunity within seller. We continue to beat our expectations within cash. Both ecosystems have some incredible roadmaps ahead, and especially for this year, which I'm really excited about, which bring both to a significant strength. But as the previous caller indicated, we think there's even more opportunity in connecting the two and having a positive reinforcement cycle between those two ecosystems. So this really allows us to focus on two critical constituencies that, I think, strengthens both ecosystems and adds a lot of value to the company.

[Amrita Ahuja, Chief Financial Officer]

And Pete, I’ll just add to the retention point. The last time we shared a full deep dive with you about our seller business back at our Investor Day two years ago, we talked a lot about paybacks and ROI and retention. And if you look at how the business has evolved since then, the dynamics in our seller ecosystem remain largely the same or better. We talked about paybacks at that time in the four-quarter range. We’re now seeing them trend to the three-quarter range. We see return on investment that is also at very significant levels. We see positive revenue retention for our existing cohorts. We see new cohorts joining at higher revenue levels.

All of these drivers have led to our seller ecosystem driving a very attractive profitability profile even as the business has scaled. And it’s because of that scaled level of profitability, it’s because of the strong unit economics, it’s because of the strong ROIs that we have the confidence to invest in this business in the back half of this year and into next year.

[Pete Christiansen, Citi]

Thank you. Appreciate the color.

[Amrita Ahuja, Chief Financial Officer]

Thank you.

[Operator]

Your next question comes from the line of Jim Schneider with Goldman Sachs.

[Jim Schneider, Goldman Sachs]

Good afternoon and thanks for taking my question. With respect to the investments you plan on making on the seller ecosystem, can you maybe just give us a little bit of color about the dimensionality of that in terms of how much of this is about going after new sellers and adding to the total number of sellers, especially larger sellers, and how much of that is about kind of extending the ancillary product offerings and additional subscriptions and services to the existing base?

[Jack Dorsey, Chief Executive Officer]

So, the way we think about this is building one tool for all types of sellers, all sizes of sellers. We want to make sure that we’re enabling the seller who’s just getting started on their houseboat, all the way up to a seller with 40 locations to be able to sell within the ecosystem. So our focus right now is going to be on hardware sales and marketing, and that will be continuing to reach out to the very small and the very large. And of course, we’re going to balance that with making our product better and better. A big focus for us right now is on the developers platform and the API. We continue to see a lot of benefit from taking a platform approach. This is especially true as we move Caviar to DoorDash. As DoorDash succeeds, we also succeed and our restaurants succeed by using the orders API and the orders hub, the orders manager at their restaurants. So this is something that we feel very confident in.

[Amrita Ahuja, Chief Financial Officer]

And Jim, just to add to that, some of the sales and marketing efforts that we’ve already seen this year have delivered positive traction. So as an example, our brand marketing campaign in April reached 7 million sellers. And while it’s still early, that positive early traction delivered top-of-funnel metrics like awareness and conversion for new sellers that we’re really encouraged by. When we look at other markets, where we’ve invested in this way with brand awareness in our international markets, those brand awareness campaigns have actually driven greater efficiency in our direct performance marketing spend as well. So I think as Jack mentioned, you’ll see us lean in on areas like hardware, top of funnel, brand awareness as well as some of the direct performance-related marketing to drive the full ecosystem here.

[Jim Schneider, Goldman Sachs]

Thank you.

[Amrita Ahuja, Chief Financial Officer]

Thank you.

[Operator]

Your next question comes from the line of Candace Cox with Candid Art.

[Candace Cox, Candid Art]

Hello, I am a Square seller and my business is CANDIDART from Oakland, California. And my question is, will Square ever offer some classes specific to entrepreneurs that business owners can attend?

[Jack Dorsey, Chief Executive Officer]

That is a great idea. We – and also, thanks for using Square. We have actually started a program called Self-Made, which is a series of free night schools, and the first editions were in Atlanta and Pittsburgh. And we do believe we’re going to bring this series to Oakland in 2020. So next year, we should have some classes for you on social media marketing, setting up a website, online store and everything you need to start and run and grow your business.

[Candace Cox, Candid Art]

Thank you.

[Jack Dorsey, Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from the line of Harshita Rawat with Bernstein.

[Harshita Rawat, Bernstein]

Hi, good afternoon. Thanks for taking my question. I wanted to ask about omnichannel, this has been a boost for you since the Weebly acquisition. But it’s also a fiercely competitive market, and many of your peers, whose business is primarily e-com are now moving in store. So, can you talk about the competitive differentiators in online? How it has evolved? And how is Weebly fitting in there?

[Jack Dorsey, Chief Executive Officer]

Yes. So, we believe that omnichannel is a big strategic value for us and something that we want to continue to invest in and grow. We believe this because we do have a lot of our sellers offline and online who either want to sell online, or for a lot of online businesses, they’re considering more experimental ways of selling like pop-up shops and physical retail. So we want to make sure that we’re a place where you can come to, you can download an app, open the service up and everything you need is right there. I think what differentiates us is it’s not just about e-commerce, it’s about all these channels, including mobile, so that a seller can bring all the channels together from offline, mobile and online in one place, in one dashboard, and have all the suite of other tools that we offer, including appointments, capital, customer relationship, management, everything needed to really grow the business, not just to make sales, but to actually grow the business and provide insights into it. And that’s what we want to continue to strengthen. And we see a lot of opportunity in continuing to invest and increasing our investment around online store omnichannel in the form of sales and marketing, which will complement everything that we’re doing around hardware and hardware sales as well. So we do think there’s a lot more room for us here. Hence, why the moves today were so important and we’ll benefit so much from.

[Operator]

Your next question comes from the line of James Faucette with Morgan Stanley.

[James Faucette, Morgan Stanley]

Thank you very much. You guys have talked about increased marketing and efforts, and obviously, a lot of that has been dedicated to Cash App and expansion of services. But wondering if you can talk about the campaigns that you launched in the U.K. last year and how effective that was and how you’re looking at expanding marketing efforts international – to the international markets you’ve identified versus in the U.S.? Thanks.

[Jack Dorsey, Chief Executive Officer]

Yes. So, in UK, this continues to be a focus for us and we want to make sure that we have a remarkable product within the market. We have been investing in brand campaigns in the UK, and this has driven efficient customer acquisition with the costs to acquire new seller down by over 50% compared to prior year. So we are learning as quickly as possible. And as you know, we are not first to the market in the UK, but we strive to be the best, and we strive to continue to bring more and more of our ecosystem to the market. We’ve managed to launch multiple products at once within the UK, which was a huge milestone for us. And we continue to look for opportunities to showcase the uniqueness of the UK market and everything that’s happening within the UK through marketing and also through our media, which continues to create a flywheel where more and more people are aware of Square and utilizing it.

[Amrita Ahuja, Chief Financial Officer]

And just to – James, to add on the international expansion part of your question, our approach to international markets is, step 1, make sure that we have a full suite of products and fill in any gaps that we have a full suite of products and fill in any gaps that we see there; step 2, to drive brand awareness campaign so that people understand Square and the full breadth of our ecosystem; and step 3, to drive greater performance media to drive conversion. So we’re still in that ramp. But with some of the product offerings that we released earlier this year and with things to come, you’ll see us continue to fill in product gaps internationally, have a full suite of offerings internationally and lean in, therefore, to sales and marketing increasingly.

[James Faucette, Morgan Stanley]

Thanks very much.

[Amrita Ahuja, Chief Financial Officer]

Thank you.

[Operator]

Your next question comes from the line of Ramsey El-Assal with Barclays.

[Ramsey El-Assal, Barclays]

Hi, thanks for taking my question. I wanted to ask about your distribution model in international markets and how it’s evolving. Are you – does it look and smell different in these different markets? Is it more partnerships in some and more direct sales in other? And just a quick bolt-on to that question, I was just wondering if the Q3 guidance was impacted by any changes in your expectations around when Eventbrite would roll out?

[Jack Dorsey, Chief Executive Officer]

Thanks for the question. So, I think, every market is going to be unique. And Japan is a really good example of this where we feel very confident now in our success in the country, because we have a lot of tailwinds from the government, who is providing subsidies for both sellers and buyers to shift to digital and card payments. We have a number of events coming up in Tokyo that bolster the number of global travelers into Tokyo. We’re expecting to use cards at every merchant that they go to within the city and within the country. So that does require a very different approach from what we have seen in the UK and what we’ve seen in Australia. So, each one is going to be slightly different. And we have folks on the ground who are aware of what the best channels are within each market. And in some cases, it is more direct sale, in some cases, it is more partnerships. So we just want to be flexible and agile as we approach every market.

[Amrita Ahuja, Chief Financial Officer]

And Ramsey, with respect to your question on guidance, it does contemplate the beginning of the ramp up and the rollout of Eventbrite in the back half of the year.

[Ramsey El-Assal, Barclays]

Okay. Thanks so much.

[Operator]

Your next question comes from the line of George Mihalos with Cowen and Company.

[George Mihalos, Cowen and Company]

Great. Thanks for taking my question. I just wanted to ask on the net transaction yield that came in a little bit lower than what we were looking for and down a little bit year-over-year, is that as simple as the mix toward larger merchant? Or is there anything else we should be thinking about in the quarter and going forward?

[Amrita Ahuja, Chief Financial Officer]

Hey, George. Yes, you got it. Transaction margin was 1.06% of GPV in the second quarter, which is down two basis points year-over-year. It was as expected. We discussed this back at last quarter that we expect transaction margins to come down slightly throughout the year as we continue to grow with larger sellers. And because of that, transaction margins are not a metric we use in isolation to measure success. We really orient again towards revenue and absolute dollars of revenue along with these efficiency metrics that we look at, overall payback periods, revenue retention, et cetera, which help us focus on the growth of the overall ecosystem along with cross-sell opportunities.

[Operator]

Your next question comes from the line of Lisa Ellis with MoffettNathanson.

[Lisa Ellis, MoffettNathanson]

Hey, good afternoon. Thanks for taking my question. A follow-up from me on the sales and marketing investments and the seller ecosystem. As you move upmarket, and as you called out, an increasing amount of your business is coming from greater than 500,000 or the 125,000 to 500,000, a lot of the competitors in that space heavily use channels like direct sales or ISVs or bank channels. As you’re investing in your go-to-market model up there, how do you think about some of those channels, like what’s sort of Square’s view on your go-to-market strategy, your channel strategy in the upper market? Thank you.

[Jack Dorsey, Chief Executive Officer]

So, when you say upmarket, do you mean larger sellers? Just to be clear.

[Lisa Ellis, MoffettNathanson]

Yes. Larger sellers, like greater than 500,000 or even in upper end of 125,000 to 500,000.

[Jack Dorsey, Chief Executive Officer]

Yes. So, we have a – we’ve seen a pretty unique dynamic. I’ll just point you to Square for Restaurants and Square for Retail, where we saw that it is attracting a number of larger sellers. And what’s interesting and really compelling is that the majority of them, over 70%, 80%, are self-serving into the app and into the service. So, self-service is important because it means that we have enabled people to – we’ve built an intuitive interface where they don’t need a call, where they don’t need help and they can just go right away. And if we can make larger sellers approach Square as smaller sellers do, who just go to the App Store and get it done, that’s a really scalable model. And then sales and marketing and a lot of our account management really becomes an opportunity for us to cross-sell and to show other tools within the ecosystem that, that seller can use. So, we benefited a lot from just having a really fast, easy, elegant and accessible product that a seller of any size can utilize. And we will always be open to other models, but we have – we think we have a lot of room to strengthen the one that we have.

[Amrita Ahuja, Chief Financial Officer]

And Lisa, just to add to that in particular, when we look at our sales approach, looking at our sellers’ sales and marketing spend, we see strong returns and an opportunity to invest efficiently. Our sales and account management teams has had high returns on investment comparable to the overall return that we’ve already shared with you on sales and marketing, which is already attractive. So we know that this team is often touching upmarket sellers, those larger sellers, and sometimes have higher acquisition costs, but because of the higher lifetime value of those customers, we see strong returns on those investments with our sales team and an opportunity to invest further.

[Lisa Ellis, MoffettNathanson]

Terrific, thank you.

[Amrita Ahuja, Chief Financial Officer]

Thanks.

[Operator]

Your next question comes from the line of Josh Beck with KeyBanc.

[Josh Beck, KeyBanc]

Yes. Thanks for taking the question. I know there’s some of the Boost commentary in the letter calling out things like customer acquisition, frequency, ticket sizes. I think those are all really important elements for restaurants. So you have DoorDash. I think that’s a really encouraging leading signal. But when you think about maybe the tenor of conversations with other potential partners, could you maybe give us a sense and maybe some type of timeline for how long it takes to attract others. Is it quarters? Is it really multiyear effort? That will be really helpful. Thank you.

[Jack Dorsey, Chief Executive Officer]

Thank you, Josh. We’re super happy with what Boost has been doing. So as you know, we started this with a very controlled approach where we took it upon ourselves to create Boost and to learn as quick as possible, continue to add features and functionality to the Boost that allow more and more opportunities for ourselves, but also with partners. And we do see a very compelling horizon with partners in particular. We’ve had a lot of interest. And again, we want to take on a mindset of making sure that we’re running really controlled experiments. So, we’re creating value for both parties and our customers. One of the sole value propositions for the Boost program is the fact that a lot of the people that we’re serving have never had access to a rewards program, and certainly one that isn’t as easy and as simple and as straightforward as what we’ve done with Boost. So, we want to make sure that we have a very high bar for our partnerships and that we’re optimizing for learning, and that comes through a lot of experimentation. And we’re matching the transactions with brands and companies and sellers that our customers love and would be delighted to utilize. So that’s kind of the thesis around it, but we have received a lot of interest. And as you might have seen on Twitter, we are hiring lead roles for the sales function, but we definitely expect this to be full with a lot of opportunities for partnership down the line and a really interesting business.

[Amrita Ahuja, Chief Financial Officer]

And Josh, just want to help also on the funding and the economic side of the Boost program, just to clarify, we fund – we have – as part of the controlled rollout of the program, as Jack was mentioning, have funded a lot of this ourselves. But the cost flow in is contra revenue. So the $135 million that we disclosed this quarter in revenue, excluding Bitcoin, is already net of any Boost cost associated with our Cash Card program. And as we continue to attract more, that gives us even more opportunities to really strategically fund this program with other partners and deliver value to our customers.

[Josh Beck, KeyBanc]

Thank you, both. Very, very helpful.

[Amrita Ahuja, Chief Financial Officer]

Thank you.

[Operator]

Your next question comes from the line of Steven Kwok with KBW.

[Steven Kwok, KBW]

Hi, thanks for taking my questions. I had a quick one around the transaction event losses. It seems like that rate as a percentage of GPV has been taking up a little bit. I was wondering, is there anything specific that’s causing that? And is that the rate that we should use going forward?

[Amrita Ahuja, Chief Financial Officer]

Sure, happy to help. Risk loss was relatively consistent year-over-year at 6% of adjusted revenue. And this line item, for us, is really driven by volume growth across each of our seller business, our cash business and our capital business. And so just to put a little bit of color on that, seller GPV grew 25%, as you saw this past quarter. Cash, we disclosed in the first quarter, cash volumes grew almost 150%. And capital originations grew 36% this past quarter. So, we’ve got strong volume of growth across the business, and that is obviously what leads into the risk loss, which has stayed consistent year-over-year at that 6% of adjusted revenue. On the seller business, risk loss remains below 0.1% of GPV. And on our capital business with core flex loans, loss rates are consistent with historical averages at less than 4%.

[Steven Kwok, KBW]

Got it. That’s helpful. Thank you.

[Amrita Ahuja, Chief Financial Officer]

Thanks.

[Operator]

Your last question comes from the line of Brett Huff with Stephens.

[Brett Huff, Stephens]

Good afternoon and thanks for taking the question. Quick follow-up on the habituation and usage of the Square Cash App Card. I know that Boost is a part of that, but as you think about the economics going forward, do you see yourselves delivering enough incremental value or enough incremental people to a merchant to shift the cost of those deals more and more to your partners and less and less coming from Square? And kind of what’s the evolution of that so far?

[Amrita Ahuja, Chief Financial Officer]

Hey, Brett. Yes, happy to help. As we shared just a few minutes ago, we’re in the early days of the Boost program. We’re about a year in. I think we launched it May of last year, just less than a year after the launch of the Cash Card itself. And we continue to prove out the value here, not only to consumers, where we see a strong incentive through Boost to join into the Cash Card program where, as Jack said, we believe we have a really unique offering around Instant Rewards for our customers here as a prepaid debit card, but also delivering value for merchants. And so we’re in the early days of that. And this DoorDash program in this past quarter is the first milestone, first proof point towards our ability to drive traffic and drive customers into merchants. And the team continues to innovate here. The Cash team continues to be creative and experiment with Boost. There’s also things planned in the roadmap for the future that we’ll be excited to share with you when the time is right. But we’re in the very, very early days here, and we’re excited.

[Brett Huff, Stephens]

Great. Thanks for the time.

[Operator]

And at this time, I’d like to turn the call back to the company for closing remarks.

[Jason Lee, Head-Investor Relations]

Thank you, everyone, for joining our call. I would like to remind everyone that we will be hosting our third quarter 2019 earnings call on November 6. Thanks again, for participating today.

[Operator]

Ladies and gentlemen, thank you for participating in today’s program. This does conclude the program and you may now disconnect.