Block Inc

NYSE:SQ

Earnings Call Transcript 2022-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Block Second Quarter 2022 Earnings Conference Call.

I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead.

[Nikhil Dixit, Head of Investor Relations]

Hi, everyone. Thanks for joining our second quarter 2022 earnings call. We have Jack and Amrita with us today. We will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from our customers in addition to questions from conference call participants.

We would also like to remind everyone that we will be making forward-looking statements on this call. All statements, other than statements of historical fact could be deemed to be forward-looking. 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. During this call, we will provide preliminary gross profit growth results for the month of July. These represent our current estimate for July performance as we have not yet closed our accounting financials for the month of July and our monthly results are not subject to interim review by our auditors. As a result, actual July results may differ from these estimates.

Also we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the Shareholder Letter, Investor Day materials and investor presentation 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 would like to turn it over to Jack.

[Jack Dorsey, Chief Executive Officer, Chairman & Co-Founder]

Thank you all for joining us. I'll start with a few highlights across our business from the quarter.

We continue to make progress, connecting our ecosystems. The connections we are building like with Afterpay are what set us apart and make us so valuable to our customers. In Cash App, we're just starting to bring Afterpay's discovery capabilities into our ecosystem. The greatest combined opportunity we see is in commerce. Afterpay will introduce discovery and shopping to build on the elements that Cash App is already created around commerce, like Cash App Pay and Boost. We believe our new design with Cash App will let us scale new products and drive deeper engagement. We're rolling out a new Discover tab to the main navigation, making it easier for customers to find and use brands and products that can save on with Boost and Pay in with installments with Afterpay.

This lays the foundation for new experience and enables customers to connect with one another, find offers and search. And this is just the beginning. We've seen early results, but we believe that over time Cash App will become one of the best ways to discover products, brands, and businesses.

Also, within Cash App, in the second quarter, we introduced a new investing feature Round Ups, as part of our work to make investing relatable and accessible for everyone. Customers can now Round Ups their Cash App Card purchases and invest the spare change in stock or Bitcoin. Round Ups engage customers on other products within our ecosystem, creating more reasons for customers to bring money into the Cash App ecosystem.

Within our Square ecosystem, in May we announce the in-person integration of Afterpay for Square sellers in the U.S., in Australia, adding to the online capabilities we announced earlier this year with more products to come. The addition of in-person, Afterpay is the omnichannel tool in our ecosystem, which many of our sellers haven't typically had access to helping sellers grow their sales, both online and in-person.

We've also continued to add tools and services to our Square for Restaurant offering, to help restaurants of every size and type grow and run their business. Our product suite helps restaurants with every aspect of running a business from delivery orders to team management. During the quarter, we added new hardware and software solutions, including a mobile point-of-sale to help restaurants efficiently take orders and payments tableside or online and turn more tables and grow sales. We also made it easier for restaurants to get started with Square by adding ability to import menus, along with automated menu creation from PDF, photo, or website.

And with that here's Amrita.

[Amrita Ahuja, Chief Financial Officer]

Thanks Jack. There are three topics I'd like to cover today. First, an update on our performance for the second quarter of 2022. Second, trends across our business in July, and third, are planned investments for 2022, where we are being disciplined in preparation from multiple macro scenarios.

In the second quarter, we delivered strong growth across our ecosystems, with gross profit of $1.47 billion, up 29% year-over-year and 47% on a three-year CAGR basis. Gross profit includes an $18 million impact from the amortization of acquired technology assets, and excluding these non-cash expenses, gross profit was $1.49 billion. Adjusted EBITDA was $187 million.

For the second quarter, our BNPL platform, which we acquired through the acquisition of Afterpay, contributed $150 million of gross profit, split across Square and Cash App. And excluding this gross profit for the quarter was $1.32 billion, up 16% on a year-over-year basis and 42% on a three-year CAGR basis.

Square generated $755 million of gross profit in the second quarter, an increase of 29% year-over-year and 30% on a three-year CAGR basis. Excluding $75 million of gross profit from our BNPL platform, Square gross profit was $681 million, up 16% year-over-year and 25% on a three-year CAGR basis.

Looking into the drivers of second quarter performance. First, we saw continued healthy retention across our existing seller base. In the second quarter, we achieved positive GTV and gross profit retention for our Square business. Second, we continue to deliver on our strategic priority of going upmarket. Gross profit for mid-market sellers was up 24% year-over-year and 40% on a three-year CAGR basis. We've seen continued momentum in food and drink, which has delivered the fastest gross profit growth of any Square vertical on a five-year CAGR basis.

As Jack mentioned, Square for Restaurant has been an important driver of our success here through the first half of the year, GPV from Square for Restaurant sellers more than doubled year-over-year. With these sellers using an average of four monetized products during the second quarter.

Third, we've experienced continued success expanding globally. Including Afterpay our market outside the U.S. represented 13% of Square's gross profit in the second quarter. We remain focused on improving product parody globally and launched 44 products in our international markets during the first half of the year. We believe that bringing more of our ecosystem, these markets helps increase our value to sellers.

Cash App generated $705 million of gross profit in the second quarter, an increase of 29% year-over-year and 88% on a three-year CAGR basis. Excluding our BNPL platform, Cash App gross profit was $630 million, up 15% year-over-year and 82% on a three-year CAGR basis. This quarter, we had our highest quarterly inflows ever into Cash App, with overall inflows increasing both quarter-over-quarter and year-over-year.

Let's discuss some of the drivers here using our inflows framework, looking at active and inflows per active. First, we continued growth for monthly transacting actives, reaching $47 million as of June, up 18% year-over-year with weekly and daily actives growing even faster. We have been focused on enhancing the reality of peer-to-peer by expanding our presence in new demographics. When an active has more of their friends and family using Cash App, they have more reasons to come back and their retention often improves. In the first quarter, retention was 31 percentage points higher for active with a network size of four or more other accounts compared to those with a network size of one. A focus of our community pillar has been to deepen our presence in lower penetrated regions and demographics by broadening our go-to-market efforts and enabling more social discovery of our products.

Second, inflows per active averaged $1,048 in the second quarter, which was relatively stable compared to the first quarter, even at the seasonal impact and tax refunds subsided and was down 11% year-over-year, primarily due to government disbursements in the prior year. By having a full suite of financial product, Cash App has been able to drive more banking customers who are highly engaged, bringing in more inflows on average and typically use multiple products across our ecosystem. And with the introduction of Cash App Borrow, our first credit product, we have greater breadth to offer our banking customers and more ways to deliver value.

Cash App Borrow has seen strong, early momentum. Similar to our lending products across -- other lending products across Block, we're focused on two areas. First, we're building fair and accessible products for our customers. Cash App Borrow offers short duration loans where customers have taken out loans amounting to less than $200 on average in a month. These loans can be paid back either in installments or as a percentage of inflows into Cash App. Many of these customers may have been left out by traditional financial institutions, and we believe unique insights from our broader ecosystem allows us to serve them in a responsible manner.

Second, we've achieved profitable unit economics on Borrow, driven by discipline around risk. Using automation and machine learning models, we proactively offer loans to some of our most engaged customers. Borrow actives brought four times more inflows into Cash App compared to active, who only use peer-to-peer. This discipline around eligibility criteria combined with multiple frictionless ways to payback has allowed us to generate meaningful improvements in risk loss as we iterated on the product over time, achieving loss rates of less than 3% as of the second quarter.

Our approach to expanding access with discipline on risk is how we've operated Square loans. And it has allowed us to scale Cash App Borrow to 1 million monthly active as of June. Further Cash App Borrow has benefited our broader ecosystem. In the second quarter, over half of these loans were used to fund transactions on Cash App Card or peer-to-peer transfers. While we've seen strength so far, we are also being mindful of the environment. This is a short duration product where we determine eligibility based on unique data signals, which we believe enables us to pivot quickly. As with the rest of our business, we are tracking trends in real-time to monitor any changes, and we intend on acting conservatively with each of our credit products as the macro environment evolves.

Shifting to Afterpay. In the second quarter, GMV for Afterpay was $5.3 billion, up 13% year-over-year or 65% on a three-year CAGR basis. For overall growth trends, we've seen impacts from spend shifts from online to in-person, competitive dynamics, as well as foreign currency, which slowed year-over-year GMV growth by five points. We've seen growth hold up better in our more mature regions like Australia, which is more diversified across discretionary and non-discretionary verticals, as well as in-person and online channels. Trends have flowed more in North America, a newer market for Afterpay, where the primary verticals of fashion and beauty are both discretionary retail and where the Afterpay in-person product is still ramping.

As we integrate Afterpay, we see an opportunity to further diversify, particularly in the U.S. with our base of millions of Square sellers, across a range of high ticket verticals and omnichannel products. On a GAAP basis, revenue for our BNPL platform was up 6% year-over-year, growing slower than GMV given makeshift newer markets. Gross profit was down 2% year-over-year impacted by $11 million in amortization of intangibles within cost of sales. Without this impact gross profit growth would've been more in line with revenue growth.

Losses on consumer receivables were 1.02% of GMV during the second quarter, an improvement compared to 1.17% in the first quarter, driven by mixed shifts as well as enhancements to our risk models and processes during the first half of the year. We continued to see healthy consumer repayment behavior with 90% -- 95% of installment paid on time.

Next, an update on recent trends through July. We expect overall company gross profit growth of approximately 35% on a year-over-year basis, including our BNPL platform or 22% excluding our BNPL platform. The year-over-year growth rate improved compared to the second quarter. Although, the three-year CAGR helps normalize for the unusual growth comparisons during the pandemic. On a three-year CAGR basis, we expect overall growth to be consistent with a 47%, three-year CAGR we delivered in the second quarter or a 42% three-year CAGR excluding our BNPL platform.

Let's look into trends by ecosystem. For Cash App in July, we expect gross profit, excluding our BNPL platform, to grow by 32% year-over-year and be relatively consistent with the 82% three-year CAGR in the second quarter. On a year-over-year basis, we've seen growth in actives and overall inflows in July, while inflows per active decline slightly given government disbursements in the prior year. On a three-year CAGR basis, inflows per active growth was in the mid-teens in July and relatively consistent with the first and second quarters.

JULY spend per active on Cash App Card achieved positive growth on a year-over-year basis, with a three-year CAGR also in the mid-teens and July spend on Cash App Card increased compared to the monthly average in the second quarter. The mix of discretionary and non-discretionary spend remained relatively consistent with the second quarter. We have seen a diverse range of use cases on Cash App Card with 33% of spend on gas utilities and travels, 30% on food and grocery, and 22% at big box and discount retailers. While we expect Cash App year-over-year growth rate to improve in the third quarter, we expect to see a slight moderation in the three-year CAGR as we begin to lap the launch of tabs in 2019, and as Cash App continues to grow off of a much larger base.

For Square in July, we expect gross profit, excluding our BNPL platform, to grow by 14% year-over-year, and to be consistent with a three-year CAGR of 25% in the second quarter. Square GPV is expected to be up 18% year-over-year in July. On a three-year CAGR basis, GPV growth is expected to be 23% in line with second quarter trends.

Diversity among our seller base from our mix of channels and verticals has helped drive the stability. We're seeing faster growth from card present volumes compared to card not present volumes as in-person channels of offset some recent mix shifts from online channels. And across three of our largest discretionary verticals, food and drink, retail, and beauty and personal care growth was relatively stable on a three-year CAGR basis.

As we had expected Square GPV continued to grow faster than gross profit on a year-over-year basis, driven by continued normalization and transaction based gross profit margins. And as we lap non-recurring PPP gross profit of $30 million in Q3 of 2021 and $59 million in Q4 of 2021. We expect the delta between GPV and gross profit growth to continue through the remainder of 2022 on a year-over-year basis.

Turning to our BNPL platform in July, we expect GMV to be up 12% year-over-year or 61% on a three-year CAGR basis. In July, we expect GAAP gross profit to increase 1% year-over-year. On a GAAP gross profit basis, Afterpay's results are impacted by expenses related to the amortization of intangible asset, which is expected to be $12 million on a quarterly basis going forward.

We remain focused on unlocking the opportunities we see with our integration and the vision we outlined at Investor Day, we believe our combined scale will be a key differentiator as we bring Afterpay to Cash App consumers and a Square's diverse seller base.

Shifting to our expectations for the remainder of the third quarter and full year. As we shared on our last earnings call, we continue to believe Cash App year-over-year gross profit growth rate, excluding Afterpay, will improve in the second half of the year compared to the first half, as comparisons become more favorable as newer commerce and financial services products ramp, and with the benefit of certain pricing adjustments. Also consistent with what we mentioned last quarter, for the remainder of 2022, we expect Cash App and Square to sequentially grow gross profit each quarter throughout the year, even excluding Afterpay, assuming the macroeconomic environment remains stable.

Moving to our planned investments for the third quarter and remainder of the year. While gross profit trends within healthy through July, we recognize the importance of exercising discipline with our investments as we enter a period of potential uncertainty. As a result, we are reducing our planned investments for the full year 2022 by $250 million. We pulled back on experimental and less efficient go-to-market spend, adjusted risk loss estimates based on more current trends and slowed the pace of hiring. In total, we have now reduced our non-GAAP operating expense plan by a total of $450 million since the start of the year, which is 20% of what we initially guided for the step-up in 2022.

As we outline at Investor Day, each of our Cash App and Square ecosystems has a large portion of variable expenses in discretionary levers, which we can pull. And we believe this gives us the ability to be nimble based on changes to the environment. For 2022, we now expect to increase overall non-GAAP operating expenses by $1.85 billion compared to 2021, roughly 10% less than what we shared last quarter. Within this, we now expect Afterpay's operating expense base to be approximately $750 million this year. And excluding Afterpay, we expect to grow overall non-GAAP operating expenses by 30% year-over-year or $1.1 billion.

As we previously shared on a dollar basis, we expect to deliver greater adjusted EBITDA in the second half of 2022 compared to the first half of the year. For the third quarter, we expect to increase non-GAAP operating expenses by $75 million compared to the second quarter or $65 million when excluding Afterpay.

In closing, there are two aspects of our business that we believe can help us navigate potential uncertainty with agility. We believe the diversity inherent in our ecosystem model adds resilience in a dynamic environment as our businesses diversified across customer types, product lines, business models, and multiple ecosystems. And second, across our ecosystems, we have a number of signals into the health of consumers and businesses. We're tracking these trends in real-time and we'll use them to act quickly and prudently and to guide our business decisions. Our long-term priorities remain serving our customers, delivering profitable growth and executing with financial discipline.

With that, we'll open it up to your questions.

[Operator]

[Operator Instructions]

Our first question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

[Tien-Tsin Huang, JPMorgan]

Great. Thank you so much. Appreciate the product updates and the development pillars. I like that in the letter. Actually at least my question on the financials and what you just commented there in terms of curbing some of your spend. Because I think about spending on product and marketing, right, for Block is sort of a hallmark for the company, right, to drive differentiated growth.

So, my question is just trying to balance the needs of your employees that want to hyper budget, I'm sure to keep building out great products, but also sounds like you're being mindful as well of the macro and for shareholders that care more about profitability. So, just trying to understand how you balance all of that? And what benchmarks you're really looking at to balance both growth and the investments, if that makes sense. Thanks.

[Amrita Ahuja, Chief Financial Officer]

Thanks for the question Tien-Tsin. We are very mindful of profitability and demonstrating discipline here. Of course, as you say, we have to balance this with the large market opportunity we're addressing and our opportunity to take share gains at a time when customers need us. So, we are continuing to invest given the vast market opportunities we see. But we also recognize that the environment has changed, and we're prepared to adapt to uncertainty and maintain discipline by pulling back on some of the discretionary operating expenses, particularly those that are less efficient.

So, our actions today show that we are also focused on demonstrating greater near-term profitability as we head into what could be a more volatile macro environment. In only the first six months here this year, we've pulled back on our full year OpEx by 8% or $450 million, $250 million of which came today across three primary areas, sales and marketing, risk loss, which as you know, is both an input and an output for us, and hiring. This shows how we can dial our knobs in real-time and be disciplined. And we've intend on bringing a similar level of rigor to how we think about the remainder of the year and 2023 as we enter into planning.

We have more discretionary OpEx levers across those three areas, as well as corporate overhead that we could explore based on how we see the environment play out. While the breadth of utility to our customers across our ecosystems has held our business up well to date, what we uniquely have is real-time read on our business and on millions of consumers and businesses, which enables us to pivot quickly and take the appropriate actions that we need to take for our business.

So, we're focused on driving long-term profitability growth. Behind the strong structural profitability of both Square and Cash App, 2022 has been a significant investment year for us with Afterpay and with the investments in the Cash and Square. And as we look towards the remainder of the year and planning ahead for 2023, we intend on being purposeful with our investments and will be dynamic to adapt them to any further changes we see in the macro environment.

[Tien-Tsin Huang, JPMorgan]

Yeah. No, it's clear and encouraging. Thank you. Appreciate it.

[Operator]

Our next question comes from Timothy Chiodo with Credit Suisse. Your line is open.

[Timothy Chiodo, Credit Suisse]

Great. Thanks. Good afternoon, everybody. I want to hit a little bit on Cash App commerce initiatives. Jack, you talked a little bit about this in the prepared remarks in terms of the new Discover tab, the in-app capabilities there. Maybe you could talk a little bit about the roadmap a little further, whether some of the commerce can be done in the app, if it's going to be clicked off to other sites, and how that might look over time?

And then the second aspect is Cash App Pay not within the app, but maybe you could give an update on the merchant acceptance of Cash App Pay with non-Square or non-Afterpay merchants?

[Jack Dorsey, Chief Executive Officer, Chairman & Co-Founder]

Yeah. Thank you for the question. So, this really gets at the heart at exactly why we made the acquisition of Afterpay in the first place is because we believe that Cash App ultimately can drive a ton of discovery for merchants all around the world, but especially around local merchants. And not just businesses, but products and services that people would otherwise not have had a signal around. So, we believe that Cash App ultimately becomes a place that you want to check not on a weekly basis, but every single day because it consistently gives you a good sense of your friends and families, the businesses around you, products and services that you're interested in, offers such as Boost, all in one place.

So, a number of you have probably seen the Discovery tab in your Cash App. We're rolling it out to more and more people right now. But we're really excited about this, because we believe that the biggest part of our future is around connecting people with commerce and transactions in particular with local merchant, but also merchants around the world.

Afterpay is our solution around that. And we think there's a huge opportunity to make these connections not just with the Afterpay merchants, but the entire Square ecosystem as well, which really speaks to our strength in connecting these two ecosystems together.

In terms of Cash App Pay, in the second quarter we made a lot of strides scaling Cash App Pay to more Afterpay sellers, allowing more merchants software both Buy Now, Pay Later and Cash App Pay at checkout. And since launching Square sellers in September of last year, there have been more than 2 million transactions through Cash App Pay, and this has been mainly organic adoption. And we've signed partnerships with several enterprise Afterpay merchants who will begin offering Cash App Pay as a payment method. And we hope to bring this even further to our sales team on broadening Cash App Pay acceptance to more and more of our merchants within the Afterpay merchant base, but also the Square merchant base as well.

[Timothy Chiodo, Credit Suisse]

Great. Thank you for that update on the merchant acceptance. Appreciate you taking the question.

[Jack Dorsey, Chief Executive Officer, Chairman & Co-Founder]

Thank you.

[Operator]

Our next question comes from Darrin Peller with Wolfe Research. Your line is open.

[Darrin Peller, Wolfe Research]

Hey, guys. If you could just touch on the behavior that you're seeing with customers and consumers across the business, given the backdrop of the macro uncertainty, especially in the Cash Card side. Also, your EBITDA came in well above expectations and obviously, happy to hear about the incremental steps being taken on the OpEx side. But if you could just revisit the investments into Cash App, because it does sound like, at least into July, it was stable on a CAGR -- three-year CAGR basis, I think you said 82%. Maybe just some tough comps coming up aside from that. Thanks.

[Amrita Ahuja, Chief Financial Officer]

Thanks for the question there, Darrin. Happy to start out. So, from a Cash App perspective, we are seeing sort of stability in the trend lines on a three-year CAGR basis across sort of the customer cohorts that we look at and on a blended basis across Cash App. Let's unpack a little bit of what we've seen here across our product set, which we believe provides diversity and breadth of utility for our Cash App customers, across engagement, which we would measure as transactions and inflows per active, and then across monetization or sort of our revenue streams. And then, I'll come back to your point about EBITDA.

From a product perspective, look, we've -- as you've seen with our development pillars across financial services, commerce, community, crypto, there are a number of things that we're doing where we're building relationships and seeing product adoption from our customers. And that enables us to be dynamic in environments like this, where we see a product providing differential utility in that environment and being able to double down quickly. An example of that obviously being in the early days of COVID, our ability to move quickly to enable direct deposit access to our customers to receive government disbursements. In an environment like this, Cash App Card is becoming an increasing part of broad-based use cases for our customers.

What we saw -- as I mentioned earlier on Cash App Card, is positive growth of spend per active in July, even relative to Q2, with a consistent mix across discretionary and non-discretionary verticals alike. So, product diversity is a key pillar for us and continued growth with Cash App and in how we can serve our customers through dynamic times.

Engagement is another key lever for us. And what we see here is that obviously, as I mentioned earlier, certain products perform better at certain times. But on a blended basis, we're seeing our strongest engagement in terms of transactions per active in recent months with July at 21 times per active. Inflows per active, overall, has grown over time as well. And that's something that we'd like to see continue to grow. In July, we had mid-teens growth on an inflows per active basis on a three-year CAGR basis. And so, that's led to an overall diversification of our revenue streams and our monetization across various business models, which ultimately has enabled us to continue to invest in the business across a variety of at scale revenue streams and with some newer ramping revenue streams like Cash App Pay, which obviously Jack was just talking about as well as Cash App Borrow and other banking and commerce products.

From an EBITDA perspective, look, we're continuing to invest in our business across the seven pillars that we outlined at Investor Day. From a product development standpoint as well as from a sales and marketing standpoint, we're going to be disciplined to make sure that the areas of investment are the areas that have the strongest likelihood of return. And I think that's part of what you're seeing in terms of our operating expense guide, which is obviously an operating expense guide for the whole company, of which Cash App is a key part. But given signs of stability that we see so far, obviously, we continue to read these trends in real-time. We want to continue to invest to ensure that we remain highly valuable to our customer base and can even take share through dynamic times like this.

[Darrin Peller, Wolfe Research]

Really helpful. Thank you, guys.

[Operator]

Our next question comes from Lisa Ellis with MoffettNathanson. Your line is open.

[Lisa Ellis, MoffettNathanson]

Good afternoon, guys. Thank you for taking the question. Just a follow-up a bit on the macro point there. Are you starting to see any signs of changes in, say, spending or borrowing behavior across either the Square base or Cash App or BNPL base as a result of the macro environment? Just thinking about your exposure to SMBs and middle income consumers. And I guess kind of maybe take a step back overall, how are you feeling about how a weaker -- potentially weaker macro environment might affect you? I could imagine there are some positives and some negatives. Thank you.

[Amrita Ahuja, Chief Financial Officer]

Sure. I'm happy to start here. Thanks for the question, Lisa. And since I shared a couple of stats on the Cash App perspective in the last question, maybe I'll share some incremental stats on the Square perspective. I think similar story from a three-year CAGR basis with respect to gross profit being relatively stable from Q2 into July. Of course, there are pockets of shifts underneath the surface with respect to performance. For instance, as I mentioned earlier, mix shift from online to in-person. But the breadth of our Square ecosystem is what enables us to capture the stronger performance in-person even as we see normalizing mix shifts from online.

And the other thing I'd say here with respect to our strategy before maybe double-clicking on some of the specifics is that our strategy has been to grow in these areas that add diversity and add broader footprint for us. So, the three top strategic investments for the Square business for some years now and into 2022 are growing upmarket with larger sellers who we've seen have generally larger -- greater resilience through macro volatility, growing our omnichannel capabilities, which obviously, again, helps us navigate mixing spending patterns or shifts in spending patterns across channels; and growing globally, which enables us to see a broader range of sellers, including outside of the United States.

And ultimately, it's that breadth of our ecosystems, including the Square ecosystem, which has enabled us to be resilient through macro changes, as we've seen, even during the pandemic, which obviously impacted the Square business particularly and has enabled us to grow at a pace faster than the broader industry.

Maybe just to give you a couple of stats in terms of verticals and seller mix that we see in real-time. We have obviously a diverse base of sellers, millions of sellers. From a vertical perspective, we span a range of verticals. So, 40% of Square GPV comes from a range of services verticals in 2021. The remaining 60% is across some of those discretionary areas like food and beverage, retail and other smaller, but growing verticals where we've continued to see stability from a three-year CAGR perspective. From a seller size perspective, as I said, continue to grow upmarket. In the second quarter, two-thirds of our volume in the Square business is from larger sellers, $125,000 in annual GPV or more. And historically, those larger sellers have been more resilient through downturns. And as we've said, larger seller, broader retention within the Square business, even including our smaller sellers, has been positive across GPV and gross profit in the second quarter and into July.

And the final point I'd make here is that again the diversity of the products that we offer our customers, which go beyond commerce and payments and include customer staff, banking and other products that drive retention and multiple points of value that we can offer our sellers. And we're seeing, as we increasingly stretch to mid-market sellers, that they're adopting more products. Mid-market sellers on average adopt four products in our ecosystem, which enables us to get hired for multiple tools and value that we can provide to our customers, which again adds resilience.

So, those are kind of the key areas that I would focus to and what we're seeing in real-time. But of course, we're mindful of the environment and are reading all of these stats in real-time to be able to make proactive and front footed adjustments as needed.

[Lisa Ellis, MoffettNathanson]

Thank you. Very helpful.

[Operator]

Our next question comes from Kunaal Malde with Atlantic Equities. Your line is open.

[Kunaal Malde, Atlantic Equities]

Hi. Thank you. Amrita, I guess, you're seeing good growth across the lending products at the moment, and now you're scaling Cash App Borrow. But could you kind of expand on your comments about risk loss, and how you're thinking about credit risk across these products, particularly given the macro risks?

[Amrita Ahuja, Chief Financial Officer]

Of course. Thanks Kunaal. So, look, I think there's two attributes that we ensure all of our lending product teams are laser-focused on. One is a data-driven approach and the second is the unique structure, optimizing for the unique structure of our products relative to many others out there. From a data-driven approach, our risk in underwriting machine learning models get updated in real-time and based on a broad set of customer data, whether you're looking at Borrow -- Cash App Borrow, Square Loans and Afterpay receivables. And specifically with Borrow and Loans, we determine the eligibility criteria, which ultimately is responsible in terms of helping to protect the customer and Block. And what that does is it enables us to read that data and move quickly in times of change, as we did at the start of the pandemic, as you know, with the Square Loans business.

The unique structure of our products is really designing our products to simplify access to capital for customers and to make it easy to pay them back. These products are generally short duration, and they have a simplified repayment process, including, for some products, being first in that payback priority. And these generally -- short-duration Square Loans is well less than a year in terms of duration, Afterpay terms 15 times per year, four to six weeks at average and Cash App Borrow, all similarly terms with less than a month in terms of repayment on average. What that means is that we're laser-focused on managing risk loss as an input to how we run these businesses and the underwriting decision-making that we employ across products, enabling us to be more front footed in a dynamic environment.

And as a result, we are seeing loss rates on Cash App Borrow, which is earlier in its life and consistent with where Square Loans has been at less than 3% and positive unit economics there on Cash App Borrow and of course, Square Loans. And then for Afterpay, we're seeing a 1% loss rate, which actually improved slightly from Q1 into Q2 on the back of mix shifts, as well as enhancements that we're making here to the risk loss models. So, a key area of focus for us and one that we're deliberately looking to manage.

[Kunaal Malde, Atlantic Equities]

Great. Thank you.

[Operator]

Our next question comes from Josh Beck with KeyBanc. Your line is open.

[Josh Beck, KeyBanc]

Thank you for taking the question. I wanted to talk a little bit about the Afterpay integration path. Obviously, it seems like you're making some very good headway with respect to commerce discovery, as well as the API for sellers. Once we start to get into some of these longer term integration priorities, I'm just kind of curious now that you have owned the company for a complete quarter, how you feel like you're tracking against those. And really, any guidance on what metrics we should look for in terms of synergies. Obviously, it's one of these opportunities that can really show up across the business. So, curious to hear a little bit about the integration path, and what we should be watching for there.

[Jack Dorsey, Chief Executive Officer, Chairman & Co-Founder]

Thank you for the question. I'll start and Amrita can follow-up with more numbers. But I think the biggest reason for this acquisition was to bring two ecosystems together, so to really improve the ecosystem model between Square and also Cash App.

On the Cash App side, as I talked about before, we're really focused on discovery, discovery of merchants around you, products, services, offers like Boost. A number of you have probably seen the Discovery tab. You can find it within Cash App by looking for the magnifying glass at the bottom of your navigation.

We intend this to be a place where you can find everything related to what you might want within Cash App, be it sending money to people like your friends or buying products or services for merchants around your -- across the internet. So that is a big part of our focus, and a big aspect of what we believe is important about this acquisition.

The second is on the Square ecosystem side, offering a tool for Square sellers to ensure that they can make more sales. And day one of the start after we closed, we offered the service online and are now offering it in-person as well. So, we are very early with this integration, and it does take time to have an integration of this size. But we believe as we continue to push forward, we will see a ton of synergies between everything that we're doing on the Cash App and also the Square side to bring these two ecosystems together. And that really is the aspect that we think is most powerful in this partnership that a lot of our peers in the industry do not have. They often are focused on one aspect, such as Buy Now, Pay Later and not focused on the connection between all these things, especially the consumer and also the merchant side.

So, we will continue to increase our customers' ability to discover new products and services within Cash App, but also make it easier for our sellers to turn on these features so that they can make more sales. And the more we do that, the more the ecosystems benefit and the more our customers value us.

[Amrita Ahuja, Chief Financial Officer]

Yeah. And I'd just add, Josh, that I think you're right that from a synergy perspective, we should expect to see opportunities that span beyond just the Buy Now, Pay Later platform into each of the Square and Cash App revenue streams and lines of opportunity as we think about increasingly creating that marketplace that connects sellers and consumers alike. We are more fully integrating the people who run these businesses from a product perspective, a marketing perspective, a customer service perspective. And I'd expect us to see opportunities over time, both from top line and cost optimization to be able to really drive stronger unit economics, as well as to drive those opportunities that Jack is referencing across the broader commerce opportunity.

I'd also point you back to, as we said on the -- in my interim remarks, the diversity and the sort of complementary aspects of our customer bases is also an opportunity for us to continue to explore as we go deeper with these product integrations. We provided diversity in terms of seller size, in terms of verticals, and in terms of channels to the Afterpay, BNPL platform through our Square integration. And Afterpay provides to us similarly a deeper exploration of both commerce and financial services with consumers and merchants.

So, there are a number of things to unpack here from a product integration standpoint, and I expect to see that play out in a broader way across the P&L over the long-term as we make those integrations.

[Josh Beck, KeyBanc]

Very helpful. Thanks, Jack and Amrita.

[Operator]

Our next question comes from John Davis with Raymond James. Your line is open.

[John Davis, Raymond James]

Hey. Good afternoon. And thank you for taking the question. So, I wanted to touch a little bit on Cash App active growth. Still remains very healthy, but has slowed a little bit, I think, as expected as we lap stimulus and obviously crypto weakness. But I wanted to drill down and see, Amrita, maybe just a little bit of detail on kind of top of funnel, like new customers versus churn. I think it's only natural, you probably have a little bit elevated churn. Like what are you doing to try and keep customers active on Cash App that may have been driven to the app by stimulus? Is there a chance we could see a reacceleration in kind of net new active growth if we kind of digest this churn? Just any color there would be helpful. Thanks.

[Amrita Ahuja, Chief Financial Officer]

Sure. Thanks for the question. Maybe I can start and Jack, obviously, should add in. So, one thing I'd say is that 47 million monthly transacting assets, what we're seeing is sort of broad-based appeal, particularly for digital native Gen Z and millennials, but even more broadly than that. And we think that there's so much more opportunity to go deeper here as we outlined in some of the TAM numbers at our Investor Day. To look at the more detailed specifics on sort of a quarter-to-quarter basis, the pace for growth in monthly active base can be influenced by seasonal impacts.

For instance, in Q1 with tax refunds, we historically see that -- seen Q1 be a stronger quarter from an active and inflows per active perspective as they have greater spending power and look to deploy that. We grew our monthly active base by the same amount in Q1 and Q2, although with the seasonal strength in March from -- related to that sort of tax seasonality.

What we look at from a go-to-market perspective has been fairly consistent so far. Through the first half of 2022, we continue to see strong long-term returns on our investments. And the cost of acquisition for net new actives has been in line with what we saw in 2021. With continued engagement, as I said earlier, product adoption across the range of financial services and commerce offerings that ultimately drives that higher lifetime value for our customers, which enables us, again, of course, to reinvest.

And the other thing I'd point out is that, as I mentioned in the interim remarks, one of the key things that we think about as we think about retention for our customers is driving stronger connections amongst customers within Cash App. We see a 31 percentage point stronger retention per actives with the network are four or more in Cash App compared to those with only a network of one. And so, that's a key piece of leaning into our community pillar, making these products and your contacts within Cash App more discoverable in order to drive awareness and to drive retention.

[Jack Dorsey, Chief Executive Officer, Chairman & Co-Founder]

The only thing I would add here is, I think one of the important things that we want to continue to focus on and you all have brought up in the past is, we want to make sure that we have diversity of utility. So, we believe it's really important that people may come in for a particular reason, such as what we saw during the stimulus or just a peer-to-peer functionality that we've always provided. But in terms of retention and also new customer acquisition, it really has to do with like how much utility we're offering, that we're not just focused on one thing such as peer-to-peer transactions or investing or Bitcoin or lending, but it is a place -- one place you can do all those things. And we see peers in other industries and other spaces and other countries that have done that very well, which is sometimes referenced as super apps or banks. And we believe that over the long-term, that is the right strategy, and that is both for the Cash App ecosystem and also the Square ecosystem.

And more importantly, the fact that we have both of those in one company, we believe, is our superpower. So, over the long-term, we will continue to see a bunch of ebbs and flows within the markets and macro environments. But our strength relies on the fact that we're not just dependent upon one particular use case, one particular utility, but that we offer all of them. And while one may ebb, the other will flow. And we will continue to build this ecosystem where someone is coming back to the Cash App every single day for something that is of extreme importance in their life, which obviously we believe the relationship with money and people's financial empowerment into the economy is critical, and we hope to serve them in multiple ways. And we think that is a relationship, that is the strength and that resilience. Ultimately, over time, that creates both new customer acquisition, but also retention over time.

[John Davis, Raymond James]

Great. Thanks. Appreciate the color.

[Operator]

Our next question comes from Ramsey El-Assal with Barclays. Your line is open.

[Ramsey El-Assal, Barclays]

Thanks so much for taking my question. I wanted to follow-up on your comments just now, Jack, I guess, and Amrita. Just in terms of the multiple touch points that you can develop here that would drive benefits such as engagement and retention. I guess, can you give us more detail on the approach or strategy to sort of drive that cross-sell? I mean, obviously, the Discovery tab is a key piece of the puzzle. But I'm just curious what other levers or plans do you have? I don't know if it's marketing investments, partnerships, sponsorships? Is this more of a sort of you will build it and they will come type of situation? Or are you going to need to push the message out a little bit more to kind of force those connections to happen?

[Jack Dorsey, Chief Executive Officer, Chairman & Co-Founder]

I think we have a very unique benefit in that like we have critical, regular use network effect, which is -- and you can see this for yourself in how the app behaves in the app store on a biweekly basis, payday in the United States. We continue to see an increase in downloads in the app store. Why? Payday. When people get money, they tend to send it or request it to their friends and family.

So, we have a built-in network effect that is inherently natural to the use case that we want to continue to see grow. And we've built an ecosystem around that. So, just by virtue of people needing to send and receive money to their friends, family, work via a direct deposit and payroll and getting their paychecks, we can build something that is, at least, weekly, if not every two weeks use case and then get to more and more a daily use case, which ultimately is our goal.

We saw a step towards that with Bitcoin. We see a step towards that with the Cash Card. We see it with lending in terms of Borrow. But ultimately, discovery and the Discover tab, as you said, will bring us to that daily use case where people want to open the app every single day, because they find something meaningful there. They find something meaningful in the neighborhood. They find a meaningful product, a meaningful service. They continue to find easy ways to go back to that utility that they have with peer-to-peer. So that is always going to be our strongest acquisition and retention channel. It's entirely organic based on just what people want to do.

Of course, there are many other opportunities in terms of partnerships and marketing and all these other things that we've been very creative around, especially within Cash App. And I think you've seen with our partnerships with various celebrities and artists around the world, however it all comes back to like, is this a use case that people want to use every single day? Is it providing them value? And are they finding and discovering something that ultimately they want to do more of that is adjacent to it. That is the model. And again, it's a model for Cash App, but it's also a model for Square and the rest of our ecosystem, inclusive of TIDAL and TBD. And it doesn't happen overnight, but over the long-term, we believe these relationships that we're building with people, especially in the retention sense, will just continue to grow and continue to be more and more valuable to people, especially given that we have the broadest and ultimately, the deepest relationship with customers and what they want to do in participating with the economy.

[Amrita Ahuja, Chief Financial Officer]

And I would add, Ramsey, just to sort of provide some more examples on the product forms of connecting points within the Cash App ecosystem, because of course, as Jack mentioned, there are a number of things we can do from partnerships, sponsorship, sales perspective to broaden the platform. But from a product perspective, I think there's three things that I would outline.

One, as Jack said, the network effect inherent in peer-to-peer. You've seen us leverage peer-to-peer not only for sort of standard fiat transfers, but also for Bitcoin and stock transfers to bring visibility to our investing products. You could imagine being able to peer-to-peer send a gift card to a friend as we build out our commerce vertical. So, being able to bring your connections, your friends and family along with you as you experience these other products is an opportunity for us in driving greater adoption.

The second piece from a product perspective is around our Boost network and now superstars even further with Afterpay. But with our Boost network, what we've obviously seen is the opportunity for customers engaged through Cash App Card to get differential incentives and opportunities if they try investing or if they try direct deposit, as an example, where you can provide them with even more incentives. And now with Afterpay and the sort of ad and affiliate networks that they've got, we, with our combined efforts here, have an opportunity to grow that even further.

The third piece I'd say is the product initiatives that we have that enable us to cross-sell and go even deeper with already engaged customers. You can think of those as being direct deposit, where we see it as an attach to Cash App Card. You can see that with our taxes product, which is really seamless to use with our broader -- if you use our financial -- broader financial services suite of products. You can see that with Cash App Borrow, which as we mentioned, we determine eligibility, and we've been offering that to our customers who have multiple higher inflows. So that gives us the chance to go even deeper and offer more value and obviously, monetize some of those products with our customers who are already deeply engaged and really just create a frictionless experience about both broadening the product adoption, as well as going deeper in each of these verticals.

[Ramsey El-Assal, Barclays]

That was very comprehensive. I appreciate it. Thanks so much.

[Operator]

I'd now like to turn the call back to the company for closing remarks.

[Nikhil Dixit, Head of Investor Relations]

Thank you for joining our call, and we'll see you next quarter.

[Operator]

Ladies and gentlemen, thank you for participating in today's program. This does conclude the program. You may all disconnect.