Good day, ladies and gentlemen, and welcome to the Block Second Quarter 2024 Earnings Conference Call. Today's call will be 45 minutes. And I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead..

Hi, everyone. Thanks for joining our second quarter 2024 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 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. These forward-looking statements include discussions of our outlook, strategy and guidance as well as our long-term targets and goals.

These statements are subject to risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered 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. Further, discussion during this call of Cash App’s banking services refer to those offered through our bank partners.

Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40, we are evaluating the sum of our gross profit growth and adjusted operating income margin. 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, and our Historical Financial Information spreadsheet 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 and the transcript for Jack and Amrita’s opening remarks will be available on our website shortly. With that, I would like to turn it over to Jack..

Thank you all for joining us. I focused my shareholder letter this quarter on our go-to-market strategy for Square and our efforts to improve acquisition across sales, partnerships, marketing, and product. If you haven’t yet, please read that letter for details.

As part of this, I’m thrilled to share that Nick Molnar, the CEO and Co-Founder of Afterpay, will be leading a centralized sales function across Block, working across Square, Cash App, and Afterpay. Nick shaped Afterpay’s high-performing sales culture, and we’re excited for him to raise the bar for Square and across Block.

This aligns with our recent decision to reorganize our company’s reporting structure by function, enabling more collaboration across our different ecosystems. This will also help our people get to true mastery of their craft and open up opportunities for mobility within disciplines. We plan to execute this change this month with minimal disruption.

The new reporting structure does not impact our strategy, roadmaps, or financial goals. Instead we believe it will allow us to move with greater speed, agility, and efficiency on the growth initiatives we have discussed. Similar to prior quarters, we’re going to keep our remarks brief to focus on your questions.

With that, I'll now turn it over to Amrita..

Thanks, Jack. We delivered strong results across the company during the second quarter. Gross profit was $2.23 billion, up 20% year over year. By business, Square gross profit was $923 million, up 15% year-over-year and Cash App gross profit was $1.3 billion, up 23% year-over-year. Both businesses showed strength in areas aligned to our strategies.

Gross profit outperformance compared to our guidance was mostly driven by Cash App. We saw strength across Cash App Card, Cash App Borrow, and buy now, pay later. Inflows per active saw healthy growth, up 10% year-over-year in the quarter, and was consistent quarter over quarter despite coming off the first quarter seasonal benefit of tax refunds.

Square’s gross profit was in-line with our expectations, with strength in software and integrated payments, and banking. GPV growth in the quarter was up 8% year-over-year as strength from our markets outside the US was offset by a continued moderation in US same-store sales growth, consistent with broader macro data points.

From a profitability perspective we saw a significant increase on a year-over-year basis, with meaningful margin improvement, due to our improved efficiency and discipline on expenses. Adjusted EBITDA was $759 million, nearly doubling year-over-year, and adjusted operating income was $399 million, up 16 times year-over-year.

For the 12 months ending in June, adjusted free-cash flow was $1.43 billion, which was up more than two times versus the prior 12 months and represented 57% of adjusted EBITDA, an improvement compared to the 44% conversion rate in the prior period.

Our strong profitable growth shows that our ecosystems continue to serve our customers with differentiated value, and our teams are operating with purpose and efficiency. As Jack noted, our shift to a functional organizational structure is about deepening collaboration across our ecosystems.

What doesn't change is our commitment to our long-term target of achieving Rule of 40 in 2026 and our reporting of gross profit by business segment. We'll also continue to hold our leaders accountable to our existing product roadmap and go-to-market timelines. Turning to our expectations for the remainder of the year.

We are raising our full year 2024 guidance for both gross profit and profitability, reflecting not only outperformance in the second quarter, but also increased expectations for the remainder of the year. For full year 2024, we are now expecting gross profit of at least $8.89 billion or 18% growth year-over-year.

This reflects our strong top line momentum as we head into the back half of the year. We expect Cash App to deliver strong gross profit growth in the back half of the year with growth expected to moderate only slightly from the second quarter's 23%, even as we fully lap the benefit from improvements to our structural costs in the second half.

For Square, we expect year-over-year gross profit growth for the back half of the year to be relatively in line with the second quarter's growth rate. We remain focused on cross-selling banking and software further into our seller base, and optimizing our processing value chain.

In the back half of the year, we expect GPV growth to be relatively stable, although we are mindful that the backdrop for consumer discretionary spending continues to be dynamic. Our focus is on the things we can control, including executing against our product strategy and the go-to-market approach Jack outlined in his letter.

Over the past year, our discipline on operating expenses has driven significant operating leverage in our business. While we do not share segment-adjusted operating income, we wanted to share a view of the business level profit margins we expect this year.

For 2024, we expect each of Cash App and Square's adjusted operating income margins to be in the high-teens range, delivering meaningful improvement in the underlying profitability of these businesses each of the last two years.

Across both ecosystems, our efforts are centered on initiatives that improve our product and go-to-market velocity, and which we expect to benefit us into 2025. For Cash App, we continue to round out the features that support our bank the base strategy, and are starting to increase marketing investment behind them.

For Square, we're excited about our partnership strategy and planned product launches post completion of the orders migration work this summer. Sellers will start to see our single point of sale app before year end, which will be a significant unlock for simplifying our value proposition.

From a profitability perspective, we are now expecting at least $1.44 billion in adjusted operating income in 2024, or 16% margins on gross profit, with efficiency initiatives underway to improve our structural costs and corporate overhead.

This also reflects plans for a step-up in sales and marketing in the back half for both Square and Cash App, as we invest behind the strong unit economics and margins in each business to drive growth into 2025.

Our updated guidance now implies Rule of 35 for full year 2024, a significant improvement compared to 2023, and progressing us towards our goal of achieving Rule of 40 in 2026. Finally, as our margins and free cash flow generation have improved, we also plan to return more capital to shareholders.

We very recently completed our inaugural $1 billion share repurchase authorization. And today, we're excited to announce an incremental $3 billion share repurchase program. With that, I'll now turn it back to the operator to start the Q&A portion of the call..

[Operator Instructions] And your first question comes from the line of Tien-Tsin Huang with JPMorgan. Your line is open..

Thanks a lot. Great results here. I did like the go-to-market discussion in the letter here, Jack, and definitely excited for Nick to lead sales.

But I want to ask you, Jack, just curious what inspired this shift to a functional org structure? Why now? What outcomes do you, or should we expect from the change in the short to mid-term? Is it more collaborative products, or is it just more products? And what are the risks? Because whenever we think about these kind of changes, I always worry about the risks and I'm sure you have some guardrails in place.

So anything you could share would be terrific. Thanks..

Yeah. The short answer to the question is, it will result in much better technology, much better design, and ultimately a much better product. We -- I want us to be able to move much, much faster with newer technologies such as all of the AI models, all the open-source AI models that you're seeing come to market, really level the playing field for us.

And by seeing that technology through the lens of an engineering and design and product organized company versus trying to manage this across different business units, it means we can move much better and much faster. We do have multiple business units right now. They represent multiple brands, multiple customers.

Obviously, as we've been talking about for some time, we believe our superpower is combining these. And I believe strongly that this model will allow us a lot more flexibility, and also the collaboration that you mentioned.

But the real benefit, I believe, is more of a focus on better technology, and better design, and better products through engineering, design, and product being at the top of the company.

And obviously, centralizing sales and really providing a tangible change and shift to how we think about Square's go-to-market completes a lot of the work we've been doing on the product side. So, I'm really excited about that. In terms of risk, we've tried to mitigate a bunch of the risk by changing -- starting with only the reporting structure.

So, Block before this move, every single business unit was functionally organized. So, what this is effectively doing is just removing that business unit lead structure, appointing a new functional lead and going.

So, most of the company will not notice a change at all, but it means that we can start really focusing on our disciplines, and up-leveling and raising the bar on our talent and execution, again, from that technology and design lens. So, I think we've mitigated the risk. We're not changing any of our goals.

We're not changing our assignments to products and projects that people have. Over time, as we build confidence around those things, we will evolve our operating model and just how we work together.

But right now, this is just a reporting shift, so we can really focus on our disciplines and improve them greatly which will have all the desired outcomes that we want. So, I think with this move in particular there's very little risk because we're holding ourselves accountable to the goals that we put out before us..

Glad to hear it. Thanks..

And your next question comes from the line of Timothy Chiodo with UBS. Your line is open..

Great. Thank you for taking the question. I really want to dig in on the US GPV trends within the seller. So, two factors that have impacted growth in the recent past have been discretionary spend, which you called out earlier, particularly you called out earlier, the 2021 and '22 cohorts.

And also, there's been the weakness in the MKE, which was in the shareholder letter. But looking ahead, you have a combination of easing comps, you have the pre-auth and product work done, you have sales force hiring ahead. You mentioned reinvestment in marketing, distribution partnerships.

Granted, many of these factors are more 2025 or 2026 drivers, but with that in mind, maybe you could touch a little bit around, or expand upon the second half GPV expectations, and then somehow these initiatives would be more supportive for next year? Thanks a lot..

Yeah, I can start with this, and then Amrita can follow up. I think we now have a perfect storm brewing for Square. We've spent the past few months really focused on organizing the product priorities, simplifying our product approach, making sure that we have a much more cohesive and understandable and intuitive system.

We're looking at every single aspect of our offering from onboarding and acquisition to our dashboard where sellers are introduced to new products, to the products themselves, our hardware, how we think about marketing.

Everything has been investigated and evolved, including, as we've been talking, about our orders migration, the platform, unlocking features that bring us to parity and beyond our competitors. And now that we are centralizing sales under Nick, I feel like we have a tangible solution to that. So all the pieces are now set.

I do think the majority of them come together at the -- at closer to the end of this year. So, the end of summer to the end of the year, and really manifest next year.

And I think all these changes compound into something that I'm really excited about, much better foundation for us, and gives us an opportunity to truly compete with our peers in a way that we haven't for years. So, I'm pretty confident about all the moves.

I think we've executed them in the right priority, like, really focusing on onboarding and products first and foremost, so we did that acquisition and retaining our sellers, making sure that we have a rock solid and reliable platform that offers all the features that we see with our peers and then improving our go-to-market including newer initiatives like field sales that our peers have used quite effectively, but with a weaker product in my mind.

So then, we have the strength on all of those, I think we're shaped up for really, really good outcomes going forward..

And, Tim, I'll just add some color as well with respect to GPV trend lines that we're seeing. For the second quarter, GPV was up 8% year-over-year, which is a slight moderation from the 9% year-over-year growth rate that we saw in the first quarter.

And as we look towards the back half of the year, we expect to see stability in that GPV growth rate compared to what we saw in the second quarter as I noted earlier.

When you unpack some of what's going on there, it is very consistent trend lines with both what we've called out over the past couple of quarters as well as what we're seeing externally.

We're seeing relatively consistent trends from a churn and customer acquisition standpoint, with more of the moderation coming from same-store growth or GPV per seller, which continue to moderate a bit on a year-over-year basis.

And we've seen many other companies note similar softness from a discretionary consumer spend perspective as we look at external data points, showing a dynamic macro backdrop, whether it's slower new business formations or industry-specific data across the verticals that we serve.

Now, with that backdrop, we have still been able to grow the Square business strongly from a gross profit perspective, a 15% growth in the second quarter, and with outsized growth in the areas that we are really strategically inflecting, whether it's our vertical points of sale, which grew 21% on a gross profit basis in the second quarter, or our banking products, which grew 27%, or our international markets, which grew 34%.

Each of those areas showing strong product market fit with those customers that we're serving.

And so what we're focused on more than anything at this point, as Jack noted, is what we can control, which is improving GPV growth and ultimately gross profit growth by investing across partnerships, ramping our marketing spend, simplifying our onboarding tools, and launching new products..

Thank you, Jack. Thank you, Amrita..

And your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open..

Hey, guys. Thanks. Nice job. The -- I want to touch on the incremental distribution partners you called out, like US Foods, and obviously those are clear adds and material -- could be material. I think you talked about 40% coverage of the restaurant space.

If you could just expand on this a little bit more on what the potential is for it, how it could contribute to actual GPV potentially over time? How does this fit into the roadmap and timeline in your strategy? And then maybe just any other types of partnerships we could expect on the horizon, whether it's domestic or internationally? It seems like a nice addition..

Yeah. So we've -- as I said, we've been reconsidering everything including how we think about partnerships. We've got a lot of questions about this in the past.

We're investing in three types of partners, vertical in specific industries like food and beverage, horizontal that have more broad reach across geographies and business types, and then looking at third-party sales organizations.

In terms of food, as we mentioned in our shareholder letter, we've made a lot of progress, especially around food and beverages and we signed US Foods, and that means we're serving to our partners up to 40% of the restaurants in the United States, which is a pretty sizable chunk.

And we have a strong pipeline of both vertical and horizontal partners in the US. International, we're doing a lot more, especially around bank partnerships. So, outside of the US, the bank partnership angle is working quite well and we're working to sign more. And also, internationally, we're exploring third-party sales as well.

It's just a much easier approach than what we're currently seeing in the US, and where we think we're going to get the most impact in the United States..

That's great. Thanks, Jack..

Thank you..

And your next question comes from the line of Ken Suchoski with Autonomous Research. Your line is open..

Hey, good afternoon. Thanks for taking the question. Direct deposit has been a focus for the company for some time. I don't think I saw it in the letter, but I think we're still at a few million recurring paycheck direct depositors. One of your main competitors has, call it, 4 million to 5 million direct depositors.

What's it going to take to push this number meaningfully higher? What's working? What's not working? And is there any way to think about the adoption curve around direct depositors and the visibility you have into that? Thanks so much..

Yeah, I can start and Amrita can follow up, but there's three main ways that we believe we will drive direct deposit and this is all captured in our bank the base strategy, which we referenced in earlier earnings letter. The first is packaging, the second is around marketing, and the third is products. I'll start with packaging.

We want to make sure that the benefits of depositing your paycheck is super clear in the app.

So, one of the things we're doing is those who deposit $300 each month get access to free overdraft coverage up to a certain amount, 4.5% savings yield, priority phone support, which is really important and free in-network ATM withdrawals, in addition to early access to the paycheck. So, making sure that those incentives are clear.

Marketing is another one. We're investing in the back half of the year as we've been further refining our strategy based on the impact that we're seeing. Again, like, the incentives matter here. So, we have deep expertise in peer-to-peer referrals and Cash App Card with Boost.

We're starting a test this past quarter and seeing some strong results around our marketing and just like marketing those incentives. And we're cross selling direct deposit through in-app messages as well.

And then finally, in products, we want to add spending insights to the Cash App Card so customers can make more informed financial decisions, improving our web experience to look at balances and review statements. That's what a lot of our customers expect from their bank and they should expect it from Cash App as well.

And then, integrating commerce by expanding buy now, pay later on the Cash App Card later this year. These are all ways that people can make their money work more for them, and reasons why they just want to direct deposit their entire paycheck to cash up that they have much better utility. So, that's how we think about driving it.

And again, it all goes back to the bank the base strategy. And I'll let Amrita follow up..

Yeah. Ken, I'd just add that we're really holding ourselves accountable to two metrics as we assess our performance against our bank the base strategy, which of course, is just about making Cash App our customers' primary financial tool. The near-term metric is inflows per active. The medium to longer-term metric is around paycheck deposit actives.

So, looking at each of those with inflows per active, we've had strong momentum on engagement through the first half of this year. In both the first quarter and second quarter, we saw double-digit growth in inflows per active behind strength in our banking products, specifically with Cash App Card and Cash App Borrow.

With card, we saw -- we've seen this product is oftentimes our customers' first entry point into banking with Cash App. And as utility grows, ultimately, we see a greater portion of inflows from those customers.

With Cash App Borrow, this provides customers with access to small dollar credit, kind of like working capital, which is really key we've seen to winning that primary banking relationship.

So, continuing to drive engagement and adoption of these key financial services products is ultimately leading to stronger engagement and stronger inflows per active.

On the second metric, paycheck direct deposit active, this is a longer-term strategy, one that we've really clarified throughout the first part of this year, and as Jack noted, have already made a bunch of progress across packaging, marketing, and product features.

But that $2 million or so paycheck deposit actives was largely driven organically, and that number has continued to increase quarter-over-quarter and year-over-year as we've increased the penetration of -- into our Cash App Card active base even through the second quarter.

And as you heard from Jack, there's more to come both from a product and go-to-market perspective that we think drives focus not only to our overall banking products, but also ultimately to the long-term goal of earning their paycheck..

Great. Thanks so much..

And your next question comes from the line of Jason Kupferberg with Bank of America. Your line is open..

Hi, guys. So, lots of balls in the air at Square. We've gone through a lot of it.

I'm curious, as you look ahead to 2025, which of these newer product and go-to-market initiatives are really best positioned ultimately to move the needle on GPV growth, if you had to highlight maybe the top couple or so?.

Yeah. I think the most important thing is our platform, and making sure that we have something that's reliable. We did take a bunch of hits in the past when our service went down.

So this is a number one priority when we make sure that we are up for our sellers constantly and we're not taking any time away from their business, and that's not just about our keeping our servers up. It's also providing features that allows them to work offline, even when their Wi-Fi is down, so they can still make the sale.

Orders migration is something we've been talking about. This is migrating our system to a newer framework so that we can add features like pre-auth and deposits and other things. The kiosk that we just launched, the Square Kiosk is built on this new platform.

So, we do have this up and we will scale it to the rest of our features by the end of this summer. So, all that's on track.

The pre-auth capabilities that are being tested today through bar tabs with select sellers and all this means we can serve a wider range of sellers, more bars, full-service restaurants, service sellers, and omni-channel retailers. Onboarding has been a big focus for us as we mentioned in the shareholder letter.

It took over 10 minutes, in most cases like 20 minutes and 30 steps just to sign up for Square and we got that down to four. And that means that people can see the dashboard right away and they can see the full breadth of everything that we offer, all of our products, and they can start attaching to those products and turning them on.

But most importantly, they get a feel of what Square is and much easier to commit to it after you feel it. And the single app is one thing I'm really excited about. We have four or five apps in the App Store. We're going to bring that down to one.

That really eases our go-to-market because all we have to say is download Square in the App Store or Google Play, and the app will customize itself based on your preferences, and based on how you use it, and based on your role at the particular business that you're in.

So we're using much better technology to personalize our experiences on the apps and through our hardware and through the dashboard itself. So as I said before, I think we're -- we have a perfect storm. We've been focusing on product and acquisition and retaining folks.

We have a much stronger answer as we centralize sales across the entire company, and we have one go-to-market strategy with a leader who has done some amazing things on the Afterpay side.

And all these things will compound into a lot of the outcomes that we've been wanting to see for some time, and I think put us in a lead against a lot of our peers..

Thank you..

And your next question comes from the line of Ramsey El-Assal from Barclays. Your line is open..

Hi, Jack and Amrita. Thanks a lot for taking my question this evening. I wanted to follow up on some of your responses around the orders migration and replatforming project.

And could you help us think through the incremental sort of market opportunity that it opens for you guys, and maybe also comment on the sales strategy to sell in the new capabilities? Will you be leveraging inside sales, or cross-sell, or how do you kind of proactively get that to market expeditiously?.

Yeah….

Go ahead, Jack..

I can start on this. I think the most important thing about the orders migration is that we have a much more flexible and reliable platform with which to build on top, and it does unlock a bunch of features that bring us to parity and beyond with our peers, especially in food and beverage.

So as I said before, stuff like pre-auth, and bar tabs, and there's a whole host of features that have been blocked on this work.

But ultimately, it's not just about those particular features, it's about a much greater development velocity because we have a much more stable, much more cohesive, and much more enabling platform that allows us to really move a lot faster, but also build better products.

And product has always been our strength, and I would state that our product is far above the majority -- product quality is far above the majority of our competitors. Where we have been weaker in the past is how we mirror that with our go-to-market strategy, and just updating our approach there, especially given what our competitors have done.

Acquisition has been tough because we just put way too many steps in front of sellers. So, all of these are either launched, or about to be launched. And that gets us back to a Square that I think becomes a leader for sellers again in a way that we haven't seen in quite some time..

Yeah, Ramsey, I can add just a bit of color maybe to help bring it to life a little bit what the -- how important the orders migration is for us. Ultimately, the orders migration moves us from a payment-oriented platform towards a sales-oriented platform.

Almost all of our products assume a single payment was at the heart of a sale, but as we know, commerce has grown far more complex than that. Just to give you a couple of examples, if you order online and pick up in store, the order and the payment might be separate events.

If you go to a full-service restaurant and place an order, the order and payment again may be separate events. If a customer buys five items from an e-commerce seller and wants to return to, you need to have separate logic for the card between the order and the payment for each item.

Final example, if you're a services seller that needs a deposit before starting a project, that project or order is the core of your business, and enables -- once we shift to the orders migration, enables multiple payments for that project.

So what it enables our sellers to do is be able to sell more anywhere, anyhow more flexibly, help them run more efficiently, give them time back and empower them with the data to better serve their customers.

It unlocked just most recently our kiosk product launch, which is something that we know is really important again for the food and beverage space where sellers that want to sell via kiosk, drive through the other forms of checkout, need to open and order, which exists throughout the sale and in many cases exist long after the buyer has consumed the goods or services.

So, those are just some examples of the sorts of things across really all verticals, food and beverage, services, retail, that our orders migration helps unlock..

Thank you very much. Appreciate it..

And your next question comes from the line of Harshita Rawat with Bernstein. Your line is open..

Hi, good afternoon. Can you give us some more color on the Core Scientific deal? How do you think about the opportunity within Bitcoin mining hardware? Thank you..

Yeah, happy to. This is a -- I think this is a massive opportunity for us. That -- this is a super concentrated industry with one main provider and that is Bitmain. We spent a lot of time talking to Bitmain's customers. All the feedback was extremely consistent. The number one concern is reliability. Bitmain produces mining chips and rigs that fail a lot.

The second was around being able to customize into miner's particular solutions. This is why we decided to make the chip, and also build this in the open source -- in an open-source way, so that our customers can actually design their systems around any part of our system that they wish, or can buy a full mining rig from us.

And then second -- or sorry, third is being just a lot more transparent around pricing. And all three of those things are what mattered most to miners and our customers. In addition, we're one of the few companies in the world that have access to a 3-nanometer fab. Bitmain is producing chips that are 6-nanometer.

So, we can build a far better product, that's far more reliable, far more open, and configurable. And this is super attractive to every single miner that we've talked to, and you're seeing the results of that within one of the deals we just announced, and we have a very strong pipeline behind it as well.

So, I'm fully confident and have no doubt that this is going to be a significant business for us, and we're going to take a majority of the market share..

Thank you..

And your next question comes from the line of Lafitani Sotiriou with MST. Your line is open..

Hi, everyone. Great to see the up to $3 billion reload of the share repurchase program.

Can you talk to the capital intensity of Cash App and Square? And is it changing as the product mix shifts?.

Thanks for the question. So first, just with respect to capital allocation, to provide context level-set, as we progress towards being a Rule of 40 company, we expect both our margin profile to improve, as well as our free cash flow generation.

And what we expect to do with -- as you see here with our $3 billion share repurchase authorization as a continuation of our initial $1 billion share repurchase authorization last year is to return capital to shareholders in excess of what we need to run our business.

What we need to run our business, which I think is sort of the core to your question is, obviously, to support our operating expenses, where you've seen a tremendous amount of leverage from us over the past year or two across personnel, across corporate overhead, expenses across our structural unit economics in each of our businesses.

And we expect to continue that work as you see reflected in our raised profitability guide that not only reflects the strong second quarter, but also our improved expectations for the back half of the year. So we continue to -- on that journey of driving efficiency and discipline in our operating expenses.

The second piece of, obviously, what our balance sheet covers from a business operations standpoint is some of the lending originations related to our core lending products, which include, obviously, Square Loans where we sell the vast majority of those loans off to investors, our Afterpay buy now, pay later product, and our Cash App Borrow product.

Both of those two products are typically very small in size, $100 to $200 type loans on average, and turn 15 times a year with very simplified repayment mechanism.

So, given the short duration, given the small size, they really act like working capital for our customers, and we can efficiently turn a dollar on our balance sheet to support the growth of each of those -- the strong growth that we're seeing in each of those businesses.

We also, as we think longer term, have optionality around our funding structures. As we've done with Square Loans, we have the potential to expand upon our investor base that we could potentially bring buy now, pay later and Borrow to, over the medium to long term.

And really our focus is on the very strong unit economics and risk-return profiles that we've seen with both of these products to continue to make that case to investors over the long term..

So, can I summarize the capital intensity is broadly the same and we should expect to see ongoing share repurchase programs over time as the profitability improves as you move to Rule of 40?.

Yeah.

Our capital allocation program is, as I said, first and foremost, support the organic growth of the business, and to ensure that we can also support a diverse balance sheet, including some of these lending originations, some which we may sell off, and then to return excess capital to shareholders, and that's what you see today with $3 billion purchase authorization..

And your next question comes from the line of Dan Dolev with Mizuho. Your line is open..

Hi, Amrita and Jack. Thank you for taking my question this evening. Great results. I wanted to ask about Cash App Pay. It looks like it continues to grow. I think you mentioned volumes up seven times year-over-year, 18% quarter-over-quarter. This seems like a huge opportunity.

Can you maybe talk a little bit about the drivers and what to expect in the coming six to 12 months from that? Thank you..

Yeah, you're right. The volume was up more than 7X compared to the prior year, and 18% quarter-over-quarter. What's driving the growth is our sales team, Afterpay's enterprise sales team. As of June, Cash App Pay actives were more than 80% of the scale of Afterpay US actives compared to less than 25% a year ago. We're signing many large merchants.

This past quarter, we added Google Play, which is a top merchant for Cash App Card, and we're finding that merchants value Cash App Pay because they can access all Cash App customers, our Cash App Pay actives are highly engaged and we offer competitive pricing.

So the formula is working and the sales team is doing an amazing job and we'll continue to grow..

Great. Thank you so much..

And your next question comes from the line of Bryan Keane with Deutsche Bank. Your line is open..

Hi, thanks for taking the question.

Can you help us understand the pricing opportunities inside of the Square seller, especially with some of the product acceleration refreshes, thinking just about pricing higher for value versus some of the pricing transparency, and potentially coming in at a lower cost of ownership that you mentioned in the shareholder letter for some of the incumbents and digital peers? Thanks..

Yeah. I think at a very high level, we have a lot of opportunity here. We're seeing a lot of our peers and competitors raise their pricing, and that doesn't necessarily come with a raise in quality or more products or more features. So, we've been spending a lot of time on our quality and our products and features.

We've also been looking at simplifying how we approach pricing, and how it's presented to our customers, and we're right in the midst of doing a bunch of those reviews, and looking at the numbers and how those might work, I do think like we can have a better packaging and better bundling of our products, and we're doing that work right now.

And I'm pretty excited about starting to test these things, and that will be something that we will do definitely this year.

But I think we have a -- an amazing opportunity just given what our peers are doing as well, and how we're seeing them raise our pricing and opportunity for us to take a larger portion of the network, and not have our pricing be an excuse. We can take that off the table.

But I think the majority of it's going to come from really looking at simplifying and getting people in as soon as possible so they can see the full extent of our ecosystem and the value that it brings with the -- with much simpler pricing going forward..

Got it. Thanks so much..

And we will now take our last question from Will Nance with Goldman Sachs. Your line is open..

Hey, I appreciate you squeezing me in here. I wanted to ask a question on the Cash App monthly active this quarter. I think there was a comment in the shareholder letter about some enhancements made to promote a healthier ecosystem, as well as a strategic pullback in marketing spend.

So, maybe you could kind of elaborate on what's driving those, and maybe specifically on some of the enhancements that you made? Appreciate it. And thanks for taking the question..

Sure. Thanks, Will. So, in June, we ended the quarter with 57 million monthly actives in Cash App, which was a growth of 5% year-over-year, similar to the growth rate that we saw earlier in the year as well. We see a really compelling opportunity here to drive actives on growth for consumers in the US with less than $150,000 in household income.

That represents 80% of the US today. And so, there's significant opportunity to continue to gain market share. Some of the enhancements that we called out specifically in the shareholder letter are really to drive our continued focus on promoting a healthy ecosystem.

So, it includes changes to the onboarding flow, which can, among other things, give us a better understanding of our customers, enable access to more products, and higher limits for those customers, and also helps create opportunities for cross-selling. We're continuing to see strong engagement as we make some of these changes.

We really have focused on driving deeper engagement across our financial services and commerce products for our customers, and you see that evidenced by the strong growth of inflows per active, which grew, as I noted earlier, 10% year-over-year.

From a marketing perspective, we've been fairly disciplined in marketing as we refined our bank the base strategy in the first half of the year, and we're now ready and planning to ramp spend in the back half of the year on various campaigns.

And you heard about some of those earlier as we talked about our bank the base strategy, or engaging our customers in our banking products, and ultimately earning their paycheck. As we think about the opportunity ahead, we see significant opportunity to continue to grow across our base of potential customers in the United States.

We know Cash App resonates strongly with Gen Z and millennials. Those customers, those demographics, make up nearly 75% of our active base, and we think there's plenty of room to grow because we estimate we're only 34% penetrated in the Gen Z segment and 25% penetrated in the millennial segment.

So as we look at the long term, we see an opportunity to continue to grow our active potential base of customers for Cash App..

Appreciate it. Thanks, guys..

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