Square, Inc. (NYSE: SQ) Q4 2019 Earnings Call Transcript

Square, Inc.  (NYSE: SQ) Q4 2019 Earnings Conference Call

Final Transcript

Corporate Participants:

Jason Lee — Head of Investor Relation

Jack Dorsey — Chief Executive Officer and Chairman

Amrita Ahuja — Chief Financial Officer

Analysts:

Lisa Ellis — MoffettNathanson — Analyst

Tien-Tsin Huang — JPMorgan — Analyst

Brendan O’Connor — Shareware Square — Analyst

Josh Beck — KeyBanc — Analyst

Darrin Peller — Wolfe Research — Analyst

Harshita Rawat — Bernstein — Analyst

Bryan Keane — Deutsche Bank — Analyst

Tim Chiodo — Credit Suisse — Analyst

Pete Christiansen — Citi — Analyst

Ramsey El-Assal — Barclays — Analyst

Jason Kupferberg — Bank of America — Analyst

George Mihalos — Cowen — Analyst

Dan Perlin — RBC Capital Markets — Analyst

James Faucette — Morgan Stanley — Analyst

Bob Napoli — William Blair — Analyst

Joseph Foresi — Cantor — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Square Fourth Quarter 2019 Earnings Conference Call.

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

Jason Lee — Head of Investor Relation

Hi, everyone. Thanks for joining our fourth quarter 2019 earnings call. We have Jack and Amrita with us today. First, we want to remind everyone of the format of our earnings call. We have posted a shareholder letter on our Investor Relations website, which was available shortly after the market closed. 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 sellers 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. 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 as except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Additionally, as discussed in the shareholder letter, we discontinued the use of adjusted revenue last quarter, following receipt of a comment letter from and discussions with the SEC.

Our statement of operations continue to disclose total net revenue, transaction-based costs and Bitcoin costs determined in accordance with GAAP, which are the key components of adjusted revenue. We also introduced new guidance measures on GAAP gross profit as well as the sum of transaction-based costs and Bitcoin costs. There are no changes to any other GAAP or non-GAAP metrics. We have posted a spreadsheet on our Investor Relations website with our historical financials and additional details related to our income statement. Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call will be available on our website shortly.

With that, I’d like to turn it over to Jack.

Jack Dorsey — Chief Executive Officer and Chairman

Thanks, Jason. Hello, everyone, and thank you for joining us. A few comments from me and Amrita before we get to your questions. 2019 was a very good year for us. We continue to refine and build upon our ecosystem strategy, which we believe is our biggest competitive differentiator. Many companies only get an opportunity to scale one ecosystem and audience. We’re in the incredible position to scale two ecosystems, Seller and Cash App, representing sellers, their customers and individuals wanting to access more of the financial system. And we’re increasingly happy with the results. In 2019, we launched a lot of key products into our Seller ecosystem. The Square Card, Square Online Store, Order Manager, the Invoices app, Square Assistant and Appointments and Square Terminal in the U.K., Australia and Canada.

We also launched a number of new marketing campaigns around the world, our latest reaching an estimated eight million businesses and updated our U.S.-based pricing to 2.6% plus $0.10. Our products and developer platform are resonating with large sellers, too. As of Q4, 55% of our GPV was from larger sellers. Cash App launched a redesign for easier navigation and discoverability, boosted partnerships and equities investing. The investing feature has seen the fastest adoption of any product launched within the cash ecosystem. Cash App continues to exceed our expectations, consistently found in the top 15 free apps in the App Store and driving to 24 million monthly active customers as of December 2019, which is up from 15 million in December of 2018. The Cash Card is also at scale being used by over 20% of our monthly active customers.

The peer-to-peer transfers network continues to be our best acquisition channel as each person with an account brings in more folks just by sending or receiving money. Those new to the app then go on to discover Bitcoin, the Cash Card, Boost and Investing. It’s a strong reinforcing model we don’t see elsewhere. All this has given us a powerful foundation to build upon in 2020. We continue to find value in handling all the complexity a small or large seller or individual would face when working with the financial system. They come to and stay with Square because we’re so fast, simple and comprehensive. We strongly believe investing in this model will continue to set us apart and grow the number of people we get to serve.

And with that, over to Amrita.

Amrita Ahuja — Chief Financial Officer

Thanks, Jack. Our results for the fourth quarter and full year 2019 highlight the momentum in our efforts to help existing customers grow to reach new customers and to build new products and services, economic empowerment for sellers and individuals. In the fourth quarter, excluding Caviar, total net revenue grew 46% and gross profit grew 42% year-over-year, exceeding our November guidance. For the full year, excluding Caviar, total net revenue grew 45% to $4.57 billion and gross profit grew 46% to $1.85 billion. We believe our results demonstrate that the strategic investments we are making are bearing fruit as we’ve continued to gain share while growing rapidly at scale. Turning to our Seller ecosystem.

In the fourth quarter, Seller generated $938 million of total net revenue and $379 million of gross profit, which increased 26% and 27% year-over-year, respectively. Seller delivered slightly higher gross profit growth in the fourth quarter compared to the third quarter. This was driven by broad-based performance. Let’s examine some of the dynamics. First, as Jack mentioned, we changed the price of U.S. card-present transactions in the fourth quarter to better align with industry costs, and we’ve seen encouraging retention rates of impacted customers. Though still early, we believe this is evidence of the compelling value we provide sellers. Second, in the back half of 2019, we began investing more in go-to-market initiatives and saw favorable results following marketing campaigns with which we tell a broader story about Square’s ecosystem across software, hardware and financial services.

The ecosystem campaign drove an uplift in awareness of Square’s products along with a 30% uplift in web traffic year-over-year. This, in turn, drove both self-onboarding and lead generation for our sales teams. While the majority of new sellers still self-onboard to Square, we are increasingly serving larger sellers through our sales team. Sales accounted for 20% of new seller GPV in 2019, up from 12% in 2015. We expect contributions from our sales team to play a growing role in 2020 as we build out the team, increase productivity through data science tools and get the message out about our product innovations that enable us to serve the needs of larger and more complex sellers. Square Capital was another driver of growth for the Seller ecosystem. We recently updated Capital’s data science model, which enabled us to serve more loans to qualified sellers while maintaining loss rates of less than 4% on average. Finally, for Seller, we believe a key part of our future growth is international.

Although relatively small for us today at 52% year-over-year growth in Q4, international is compounding at roughly two times Seller’s blended growth rate and has now delivered two consecutive quarters of faster year-over-year growth. Turning to Cash App, where we have seen healthy growth in monthly active customers as well as monetization per customer driven by our team’s continued innovation around product features. In the fourth quarter, Cash App delivered $183 million in revenue, excluding Bitcoin, up 96% year-over-year and $141 million in gross profit, up 101% year-over-year. Cash App’s strong and sustained growth has led to a mix shift in our overall company gross profit with cash accounting for 27% of total gross profit in the fourth quarter compared to just 19% a year ago. Our teams are focused on driving regular engagement with our customers.

As Jack mentioned, Cash App was at 24 million monthly actives in December, up 60% year-over-year and has added more new monthly actives each year since launch with December 2019 being its strongest month for new adds. Cash App daily active customers increased at an even faster clip of 80% year-over-year as we’ve enhanced discoverability and navigation to our products as well as added new products like equity investing. Cash App has not only been growing its engaged customer base to an impressive scale, but it has also driven consistent growth in revenue per customer over the past few years. In December, Cash App generated more than $30 in annualized revenue per monthly active customer, excluding Bitcoin, which more than doubled from less than $15 in December of 2017. While this is strong monetization for a consumer app, we believe we have room to grow further by continuing to increase the attach rate on Cash Card and further cross sell new products to come.

In both our Seller and Cash App ecosystems, we’ve achieved compelling unit economics with strong retention and payback periods. This is a result of our ability to build and integrate remarkable products, find efficient channels for customer acquisition and deepen relationships with our customers over time. 2020 is an important year for us as we continue innovating and investing to bring new customers into both our ecosystems in the U.S. and globally. Turning to our financial guidance for 2020. We expect to achieve total net revenue of $5.90 billion to $5.96 billion and gross profit of $2.44 billion to $2.475 billion or 34% year-over-year gross profit growth at the high end of the range, excluding Caviar. These figures are ahead of the preliminary expectations we shared on our third quarter call as the business has continued to execute at high-growth rates even as we’ve scaled.

We expect our 2020 transaction profit margins as a percentage of GPV to be relatively stable compared to 1.08% in 2019 as we expect any benefit from the pricing change to be largely offset by mix shift to larger sellers. We expect to generate adjusted EBITDA between $500 million and $520 million, consistent with the preliminary guidance we provided on our last call. Similar to 2019, if we deliver top line outperformance during the year, we do not intend on increasing our adjusted EBITDA guidance and instead plan on reinvesting that upside back into the business where we see opportunities to benefit long-term profitable growth. Our EBITDA guidance includes strategic investments across both ecosystems, including the previously outlined sales and marketing spend for our Seller ecosystem, which we expect to achieve a 4-quarter payback on our overall 2020 spend and to return multiples over time based on the strong returns we see.

Additionally, as previously mentioned, 2020 guidance includes a larger-than-normal facilities expansion related to our Oakland office as well as additional regional offices, which will add an incremental onetime step-up of $50 million to our operating expense base. Over the medium to long term, we expect to continue to drive leverage from our G&A expenses as we have historically. Finally, we’re hosting our Investor Day on March 18 in San Francisco, where we will provide a deeper update on our long-term vision, market opportunity, strategy and business model for the Seller and Cash ecosystem and long-term financial outlook.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Lisa Ellis with MoffettNathanson. Your line is open.

Lisa Ellis — MoffettNathanson — Analyst

App numbers. Two quick ones on Cash App. First, given the fee pressure in the retail investing industry, what’s your monetization strategy for the new equity investing functionality? And then second, what are the biggest benefits you’re seeing from the new Cash App design as you’ve rolled it out in the last few months?

Jack Dorsey — Chief Executive Officer and Chairman

Thanks, Lisa. I’ll start with the second question actually. We did as I mentioned in my remarks, one of the things we did last year was to clarify the navigation. And the goal of this was to increase the discoverability of our other services. The Cash Card, Bitcoin, which is also grouped with investing now and just provide a much more fluid and easy-to-access way to get some of the core functionality. That worked. We did see increased discoverability. And the reason why that’s important, ultimately, is the peer-to-peer network has a great reinforcing model in that it grows as people just send and receive money. But as people see new features within the app such as investing, they tend to retain longer and we tend to see a lot of benefit from that usage as well.

So we started just going down that path, there’s still potential work to do around the navigation to bring even more forth, but we’re really happy with those results. As we’ve talked about in the past on these calls around any of these features, we have a lot of levers to pull in terms of whether we see them more as acquisition channels or areas for us to drive monetization and profit. We want to be flexible with that. So this is something, as we introduce these new adjacencies, that give people more access to the financial network. We can evolve or change over time. The goal right now is to provide something that not a lot of people have had access to in the past but also learn as much as possible so that we can then make better informed decisions.

Amrita Ahuja — Chief Financial Officer

Just to add to that, Lisa, when we look at products like investing, what we see is very engaged customers who have the opportunity to do lots of things across the ecosystem. And that engagement, in turn, drives broader monetization. So in investing or Bitcoin active tends to generate two to three times the annual revenue compared to other cash customers that we see. And what you think about there is the seven different revenue streams that we have, the multiple ways that we have to add value to our customers and drive that daily utility, which in turn results in seven different revenue streams that we have across Cash App that we can drive people to now that we have greater discoverability and navigation as well.

Lisa Ellis — MoffettNathanson — Analyst

Terrific. Thank you.

Operator

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

Tien-Tsin Huang — JPMorgan — Analyst

Hi. Thanks for the presentation. I wanted to ask on the pricing side, you just your pricing philosophy in general. We’ve seen fees go up for Instant Deposit and some prices down for Register and Terminal as you called out in the letter. So has your thinking around pricing changed as part of your investments in go to market?

Jack Dorsey — Chief Executive Officer and Chairman

Thank you. I’ll start with this. I think just to remind folks of our early philosophy around price. One of the key differentiators for us in the early days of the company was the simplicity and more so, the consistency of our price. So we started with 2.75%. This is important to merchants because, typically, when they went to accept credit cards, that rate was variable based on the card that their customers were using. So adding something that presenting something that was stable, that was transparent and that was upfront was really the philosophy, independent of the particular number. That remains true today. We do see price as a lever for us, and we want to make sure that we’re balancing the needs of our customers but also enabling us to fuel more of our work and building.

Tien-Tsin Huang — JPMorgan — Analyst

Got it. No, you guys pioneered that. See you guys next month. Thanks.

Jack Dorsey — Chief Executive Officer and Chairman

Thank you.

Operator

Your next question comes from Brendan O’Connor with Shareware Square. Your line is open.

Brendan O’Connor — Shareware Square — Analyst

Hi. This is Brendan. I’m a Square seller from a small bakery called Flower and Salt Bakery up in upstate New York. My question is does Square have plans to develop a way for sellers to fulfill delivery orders so that small town businesses can run their own delivery service without relying on the big delivery companies that don’t have local operators.

Jack Dorsey — Chief Executive Officer and Chairman

Yes. Thanks for the question, Brendan, and thanks for being our customer and using Square. This is actually a frequent request from our sellers because we know that managing delivery orders is really difficult and complex and takes away time from you to really focus on your customers and making more sales. If you use Square Online Store, we have Order Manager there. So when customers purchase something from your website and select delivery, the order pops up in your point of sale, but we don’t currently have a fleet management service or a way for buyers to track deliveries, but it’s something that we’re open and considering. And we also have a number of partners in the app marketplace that you can connect with that can help with those needs, too.

Brendan O’Connor — Shareware Square — Analyst

Yes. Unfortunately, a lot of them aren’t local to us because we are in such a small town, but I look forward to seeing you guys work on something for us in the future.

Jack Dorsey — Chief Executive Officer and Chairman

Got it. Thank you so much.

Operator

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

Josh Beck — KeyBanc — Analyst

Thanks for taking the question. I just wanted to maybe unpack 2020 guidance a little bit just given the growth rate and I think really the phase of the consumer and Seller ecosystems are at different points. Any kind of color you can provide and just how we should be thinking about those businesses as we go through the year?

Amrita Ahuja — Chief Financial Officer

Yes, happy to take that question, Josh. So as you look at our 2020 guidance, what we see here really is a reflection of the strong broad-based momentum that we have across both ecosystems coming out of Q4 and now in the early part of 2020. So you’re looking at gross profit growth of 34% ex caviar at the high end, which is slightly ahead of our initial expectations on our November call. So to unpack that for you a little bit across Seller and Cash, with Seller, we expect stable gross profit growth consistent with the back half of 2019, which was roughly in the 26% range. And as you know, we’re ramping our investments throughout the year in sales and marketing. So as we ramp those investments, we’d expect to see an impact to our top line numbers towards the end of 2020 as we ramp the spend and as we add new customer cohorts throughout the year at the end of 2020 and into 2021. On Cash App, we have grown this ecosystem rapidly.

It now represents 27% of the overall company gross profit in the fourth quarter, and on an annualized revenue run rate basis ex Bitcoin is at over $700 million in Q4. And so with triple-digit gross profit growth, you’re at 104% gross profit growth in the fourth quarter. Naturally, you’d expect to see those growth percentages come down over time. In 2020, we still expect cash flow to drive sustained growth on a dollar basis. And this is, again, based on the durability of the business model that we have here in the power of compounding over time. With respect to your question around phasing. In Q1, we tend to see a bit of seasonality around the Seller business, especially coming out of the holidays in Q4 with cash becoming a larger percentage of our business. So that has started to counteract that a little bit because we see less of that seasonality in cash. That’s a little bit of the dynamics that we’re seeing play out in terms of the phasing throughout the year.

Josh Beck — KeyBanc — Analyst

Very helpful. Thanks, Amrita.

Amrita Ahuja — Chief Financial Officer

Thank you.

Operator

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

Darrin Peller — Wolfe Research — Analyst

Hey. Thanks, guys. You know, I just want to follow up a bit on the Cash App monetization side, which was clearly impressive at about $30 per user, I think you guys said. And I mean it looks like it’s around three times that of the revenue per user of your closest competitor has called out. So just maybe help us understand, again, the strategy that’s enabling that other than maybe just pricing nuances. What’s the opportunity? And what are you seeing consumers how are they behaving around this app? Is it becoming that neobank to them yet that’s enabling that? Is it still mostly Instant Deposit and Card and what else is to come? And then maybe just when we look at the gross margin of that, I think it was around 70%. It was also pretty impressive. Can you just touch on the scale possible in that business versus the investments needed?

Amrita Ahuja — Chief Financial Officer

Sure. I can start on that, Darrin. Thanks for the question. So just to break down kind of how the cash team this team has a lot of gumption and they have really executed at a high level over the past few years. Just to break down a little bit about how that team focuses and what they’re looking at, first and foremost, it’s network growth. And you saw that this quarter ending the year at 24 million monthly active customers, which is up 60% year-over-year. But even more importantly than that is the daily usage that the team is looking to drive through the launch of new products, through things like the tabs redesign, which really creates greater navigation to the broader ecosystem of products that we offer. And daily usage was up 80% year-over-year, growing faster than the overall network.

So we’re proud of the work there and also proud that we’ve achieved this growth with relatively low cost of acquisition on paid marketing, which, again, is a result of that core feature around peer-to-peer transfer, helping to bring in more customers at a relatively low cost, efficient cost of acquisition. From a cohort economic standpoint, as you called out, that $30 on a per customer basis that’s across all monthly active customers has more than doubled since 2017. And there’s another important step in that as well, which we shared last quarter, which is we see positive revenue retention for each of Cash’s monthly cohorts of active customers since 2015. That’s a similar dynamic that we’ve seen to the Seller business and again, shows that we’re able to efficiently acquire customers, keep them engaged on increasingly a daily basis and then offer them additional ways that we can add value and therefore, monetize across the ecosystem.

Jack Dorsey — Chief Executive Officer and Chairman

Yes. And I just would want to point out that this is where the ecosystem model really works well for us. We don’t see that with the other neobanks. We have a very strong foundation in utility in peer to peer, which allows us to introduce folks to various aspects of new functionality within the app itself. And that spreads through word of mouth as well. We also benefit from some really creative and highly impactful marketing that the team does do. We’ve just the team has kind of rethought how to think how to bring a product and features into the market in the first place, and we also benefit a lot from all the songs that are out there that have Cash App either in the name or in the lyrics.

Darrin Peller — Wolfe Research — Analyst

Great. All right, thanks, guys.

Operator

Your next question comes from Harshita Rawat with Bernstein. Your line is open.

Harshita Rawat — Bernstein — Analyst

Hi. Good afternoon. So Amrita, a question for you on investments. Clearly, lots of good opportunity for you to invest across omnichannel, international, sales and marketing, new products, Cash App. As you sort of look into your guidance for 2020, what are the two or three big investment areas that you’ve planned for this year beyond sort of like increased sales and marketing spend on the Seller business as you had articulated before? And then more broadly, how do you think about balancing incremental investment dollars between Cash App, which is really fast growing versus Seller business, which is majority of your revenue today?

Amrita Ahuja — Chief Financial Officer

Sure. Happy to take that question, Harshita. We are focused on growing the two ecosystems in 2020 across not only products. We think of product innovation as driving long-term growth for us in TAM expansion and being able to serve new customers in new ways; and then secondly, as you mentioned, in sales and marketing, which helps us scale those products, helps us reach customers not only in the U.S. where we are distributed today but also in a number of markets around the world. So we continue to be focused on investing in both of those areas: product development to make sure we’re serving our customers through feature enhancements today as well as new ways to serve them in the future as well as sales and marketing, which is then helping to scale those products by reaching more customers in new ways.

With respect to how we balance investments across Seller and Cash, we think about, first, what the needs are independently across each business and the ways that we can best serve our customers be it sellers or individuals in each of those businesses. And then we think about ways that the rising tide can lift all boats, and we can eventually create ways that benefits in one area can return results in another area as well. So we and we’ve luckily been able to do this historically by delivering compounding scaled growth in the Seller business while creating an entirely new ecosystem organically with Cash App at the same time in a matter of three or four years. That’s now at a more than $700 million run rate. So we don’t see it as an either/or with the two ecosystems. We believe that we can drive growth and investment dollars in both of them.

Operator

Thank you. Your next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Bryan Keane — Deutsche Bank — Analyst

Hi, guys. Wanted to ask about the change in pricing in instant transfer. Do you expect some churn in that channel and a resulting pickup in Cash Card? Just thinking about the impact in the P&L. And then I have to ask the obvious question on coronavirus. Any impact you’re seeing I doubt you’re seeing anything on consumer spending in U.S. But how about international markets like Australia and Japan?

Amrita Ahuja — Chief Financial Officer

Bryan, so you’re right. In early January, we announced a pricing change on seller instant transfer from 1% to 1.5%. We felt that now that sellers have the free alternative on Square Card that gives them instant access to their funds. We felt the timing was right to reconsider the pricing on instant transfer because with Square Card not only do they have access instantly to their own funds, but it encourages sellers to keep their funds within the Square ecosystem and to use and explore our ecosystem in new and different ways. Now with respect to the P&L, this price change is already contemplated in our 2020 guidance, included in that 34% gross profit growth ex Caviar at the high end. We expect the change to be accretive in 2020 to total net revenue and gross profit growth, but it’s going to be small, we believe, relative to the size of the Seller business. Remember, we had $1.4 billion in annual gross profit in 2019. And then your second question was on coronavirus?

Bryan Keane — Deutsche Bank — Analyst

Yes, just the impact. I mean any impact in U.S. consumer spending, I doubt it, but curious on any impact on international markets.

Amrita Ahuja — Chief Financial Officer

Sure. In short, we didn’t see any material impact in our Q4 results, as you can see, nor do we expect a material impact in Q1 for our results. When you look across the Seller and Cash ecosystems today, we continue to see healthy trends in performance. We have sellers in a variety of industries on our platform, and we’re actually under-indexed to tourism. Although, of course, we’ll continue to monitor any impact to the overall consumer spend numbers that we see.

Bryan Keane — Deutsche Bank — Analyst

Helpful. Thanks so much.

Amrita Ahuja — Chief Financial Officer

Of course.

Operator

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

Tim Chiodo — Credit Suisse — Analyst

Thanks guys. So I want to touch on an important aspect of Cash App, and that will be direct deposit. With the recent app redesign and then also some of the stuff that you are doing around Payroll and/or Caviar and DoorDash, is there anything you could let us know in terms of direct deposit penetration or trends or maybe plans going forward?

Jack Dorsey — Chief Executive Officer and Chairman

We so with direct deposit, this is another area that we saw an opportunity to serve more the needs that people would typically go to a bank branch for and again, like just removing as much friction as possible so they don’t have to think about the financial system in any way. This is certainly one, ATM card the Cash Card being used at ATMs is another such example, build a way so that we can fit in people’s lives every single day instead of just being a weekly occurrence. So as we look at features like that, we’re always looking for opportunities through the app first party or through partnership. But it’s a good entry point for us and for our customers so that they can see us more and more as the way to manage their access to the financial system and for us to remove a bunch of that complexity. We’re still pretty early in understanding what those use cases are ultimately and where it goes, but we intend to learn as we see more and more usage around it.

Tim Chiodo — Credit Suisse — Analyst

Hey, thank you very much.

Operator

Your next question comes from Pete Christiansen with Citi. Your line is open.

Pete Christiansen — Citi — Analyst

Thank you. Good evening. Thanks for the question. A lot to like here. I was just hoping if we could talk a little bit about the Square Capital changes to the system there, perhaps if you could describe a little bit more in detail some of the factors that help you open up that product to more of the seller base and whether you’re seeing any changes in like origination economics for Square.

Amrita Ahuja — Chief Financial Officer

Pete, thanks for the question. So we recently updated our capital risk model to capture what we would call additional signals, which help us better optimize various loan attributes. Think of it like term length or repayment amount for sellers. Those signals improve our ability to monitor key themes, like ability to repay and likelihood of fraudulent activity that, in turn, then helps us determine creditworthiness. And this credit this update to our risk model was a key driver of Capital’s outperformance in the fourth quarter as it resulted in larger loans to our most creditworthy sellers.

And I think it’s part of a broader theme here of our access to proprietary real-time data, where we are able to continuously improve Capital’s machine learning models. And this is what’s enabled us to maintain stable loss rates below 4% on average for our core flex loan product since 2017, even as originations have roughly doubled. And in the fourth quarter, we saw some of the benefits of that. Capital generated $671 million in originations on a dollar basis, up 42% year-over-year with revenues up even higher because of the strong investor demand that we see here one.

Pete Christiansen — Citi — Analyst

Thank you.

Operator

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

Ramsey El-Assal — Barclays — Analyst

Hi, guys and thanks for taking my question tonight. How should we think about the kind of horizon of your marketing investment? Should we expect a certain point in time where we sort of lap a period of heavy investment? Or should we think of some of this as a more kind of permanent addition to the expense structure in nature? And then just as a bolt-on to that, Jack, you talked last quarter about combining the Seller and Cash ecosystems. I’m just wondering how your thinking along those lines has evolved since we last spoke.

Amrita Ahuja — Chief Financial Officer

Ramsey, I’ll take the first part of your question on how we think about the horizons for our marketing investments. What we really look at more than anything here is the efficiency metrics. And so you’ve heard us talk about things like payback period being in that 4-quarter range. What we saw in Q4 even with the beginning of the ramp of the spend here is, we believe, consistent with that 4-quarter payback. And in 2020, with the incremental investments that we’re making, again, we expect a 4-quarter payback. But the other key metric that we’d look at is ROI, return on investment, and that captures the overall lifetime value of a seller.

As we’re able to reach more and more large and complex sellers who we know take on generally more products within the Square ecosystem, we have the opportunity to expand lifetime value for these customers and therefore, even with increased spend on sales and marketing, to see very, very compelling ROI. So what we plan to continue to do is ramp the spend, optimize as we go and measure these results to ensure that we continue to see this ROI. And with the unit economics that we have in the seller ecosystem, where we have positive revenue retention, what that means is that each seller that we bring in effectively has the ability to grow on our platform and to become an annuity stream. So we believe that, that’s the dynamic that we’d that our investors would want us to invest behind.

Jack Dorsey — Chief Executive Officer and Chairman

And we have an incredible advantage over our peers in this industry because of the two ecosystems that we’re building: one, seller focused and also focusing on their customers but Cash App up as well. Pairing both of them together is quite powerful. We see this in a few ways. One, we benefit from a lot of the internal collaboration and intersections. A lot of what we’ve learned from Cash App has informed some of the products and features within the Seller business and vice versa. So that gives us ability to learn very, very quickly from two ecosystems at scale. And we do think there’s a lot of opportunity in the future to connect them from a external customer-facing experience perspective.

We have done this in the past. Most notably or probably a good example of this is Payroll. So employees can actually utilize the Payroll feature to get paid via Cash App, which is excellent. We saw this in the past with carriers when we had Caviar as well. So there’s a number of points between the two ecosystems that you can imagine us continuing to explore and building something around. Right now we’re learning what the most impactful ones of those are, starting small and then building up as we learn more from it.

Ramsey El-Assal — Barclays — Analyst

Perfect. Thank you so much.

Jack Dorsey — Chief Executive Officer and Chairman

Thank you.

Operator

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

Jason Kupferberg — Bank of America — Analyst

Hey guys. Thanks guys. I just had two on Cash App, so I’ll ask them upfront. The first is on Cash Card itself. I think you said that it’s only being used by about 20% of monthly actives currently. I would just be curious to know what that number maybe looked like a year ago and what kind of headroom you see in that number as you look forward. And then just second, can you give us a sense of how much the Boost rewards program is currently pressuring revenue and what the prospects are for more of that to move into a merchant-funded model over time?

Amrita Ahuja — Chief Financial Officer

Jason, I’ll take those questions. So on Cash Card, you did hear the 20% stat. We’re at over 20% attached rate on Cash Card. The last absolute number we gave you as of June was 3.5 million monthly actives. But as we’ve grown the base of Cash monthly actives more broadly since June, obviously, we’ve also ramped Cash Card active, and we’ve ramped the attach rate since June as well. So to your question about how has attached looked over the past year, that is something that has grown over time as we’ve been able to prove out the value to our customers and fast access to these funds and through products like Boost and as we’ve been able to create better discoverability and navigation around products like Cash Card. Our Cash Card actives are transacting multiple times a week, so we know it’s a key part of that daily engagement, daily utility that we’re driving with Cash App more broadly.

It’s also a key part of that revenue per customer that we outlined this quarter at $30 in December of 2019 versus $15 two years ago when Cash Card was still in its infancy. With respect to your question on Boost. The numbers that we report for revenue already take out the Boost cost. So revenue ex Bitcoin being $183 million in the fourth quarter already nets out our Boost costs. We the team is very active in how we manage Boost and has actually innovated on Boost quite a bit over this past year, doing things like lock Boosts and expiring Boost and geo-located Boosts, so creating different ways to create engagement around Boost and create timeliness around Boost, which also have the added benefit of creating an expense management mechanism for us around Boost as well. So it’s a growth lever for us, but it’s also one that we can actively manage.

Jason Kupferberg — Bank of America — Analyst

Okay. Thanks and a good [Phonetic] quarter.

Amrita Ahuja — Chief Financial Officer

Thank you.

Jack Dorsey — Chief Executive Officer and Chairman

Thanks.

Operator

Your next question comes from George Mihalos with Cowen. Your line is open.

George Mihalos — Cowen — Analyst

Hey, thanks for taking my question guys. Just had a question on the ILC application. Any update you could provide there? And then within that context of another fintech going out and purchasing a bank, are you thinking any differently around sort of the build-versus-buy strategy and maybe the need for an ILC application versus just buying, I guess, more of a traditional corporate bank commercial bank?

Jack Dorsey — Chief Executive Officer and Chairman

Yes, thanks for the question. We no update on the ILC process and progress. We will certainly keep you informed as we have more. In terms of I think it’s important to remember why we’re doing this in the first place. This is not something our business is dependent upon but creates a number of opportunities of efficiency. And we would certainly look at other potential options, but this is one that feels right to potentially create more efficiencies but again, no dependency on it. So we haven’t focused on other considerations.

Operator

Your next question comes from Dan Perlin with RBC Capital Markets. Your line is open.

Dan Perlin — RBC Capital Markets — Analyst

Thanks and good evening. I just had a quick question as it pertains in aggregate to the guidance for 2020. And it’s really more a function of how much flexibility do you have you built into that given maybe some concerns around the economy if we run into some bumps and you guys have to throttle back or toggle a little bit on these investments that you’re making. Would you still envision, if you didn’t make those investments that you would have, this type of growth trajectory that you guys are on? And I’m just thinking in terms of your ability to throttle back on some of those expenses to the extent that we run into some more difficult times.

Amrita Ahuja — Chief Financial Officer

Thanks for the question, Dan. So I’d start at a high level and just say that nothing has changed with respect to our guidance philosophy, which is to use as much as we know about the business to inform our outlook in future periods. And again, we’re coming into 2020 with strong broad-based momentum across both Seller and Cash in multiple ways within each of those ecosystems. So that’s really what’s informing our guide. With respect to flexibility, of course, we find ways to build in flexibility in terms of how we manage the business. And that’s through weekly reviews, monthly reviews across each of the key spend areas, whether it’s hiring or sales and marketing spend to ensure that we’re using the levers in an optimal way and that we can pivot as needed based on what we see in the market or based on the returns and efficiencies we see across various channels.

Dan Perlin — RBC Capital Markets — Analyst

That’s fair. Thank you.

Operator

Your next question comes from James Faucette with Morgan Stanley. Your line is open.

James Faucette — Morgan Stanley — Analyst

Thank you. I just wanted to ask two quick follow-ups related to questions that have previously been asked. First, you talked about a bit of acceleration in your international markets, particularly on Seller,etc. I’m just wondering if you can give some additional color as to what you’re seeing in those which markets and kind of what you think is driving that acceleration and how we should think about contribution from that. And my second question goes back to the ILC. And it sounds like, at least for the time being, you’re not feeling limited. But if you had style figures or some other sort of banking charter and license, do you think you could accelerate faster or further your Cash App and associated services?

Jack Dorsey — Chief Executive Officer and Chairman

Well, I’ll answer the second question first. So I don’t believe that would necessarily be the case. So we’re in an extremely good position. I’m really happy with our progress, pace and speed and our ability to work in very, very creative ways with partners so that we don’t have to be everything in order to provide a really compelling customer experience. So in terms of global acceleration, I think a high-level driver is we’re launching. We’re launching a lot more of our products into the markets that we’re currently in. So we launched Square Terminal in Australia, Canada and the U.K. We launched Square for Restaurants in the U.K. and Australia. And we continue to experiment with Cash in the U.K. so that we can better inform how we think about expanding the Cash App as well. But launches are meaningful. So the more we complete our ecosystem in all the markets we’re in, look for opportunities to go into new markets, it definitely benefits us in terms of usage.

Amrita Ahuja — Chief Financial Officer

And James, on international, I’d add that it’s pretty broad-based in terms of the performance that we’re seeing. Do want to caution it’s still small today, right? So international Q4 GAAP revenue was $75 million, but it’s growing rapidly. It’s growing at two times the rate of the broader Seller business at 52% year-over-year in Q4, and we’ve seen two straight quarters of improving growth rates there. And another key piece of it, as Jack mentioned, we’re launching new products. We’re attracting new sellers, and the revenue contribution from new seller cohorts, we feel, is a leading indicator of growth, and it is growing faster in international markets than in the U.S. with international now contributing over 10% of seller new seller GPV in the fourth quarter. So we’re happy with the momentum that we’re seeing there.

James Faucette — Morgan Stanley — Analyst

Thanks, Jack. Thanks, Amrita.

Jack Dorsey — Chief Executive Officer and Chairman

Thank you.

Amrita Ahuja — Chief Financial Officer

Thanks.

Operator

Your next question comes from Bob Napoli with William Blair. Your line is open.

Bob Napoli — William Blair — Analyst

Thank you. Nice execution. Question on your omni-channel strategy. It’s been over a year since you acquired Weebly. And Jack, I think you’re one of the things that you increase in marketing is to increase awareness of products, and so you have the omni-channel strategy with the online store trying to show that your software runs the whole business. So I was just wondering on the progress of that omni-channel strategy and then with expanding customer usage of your software to run the full business, maybe more like what Shopify may be doing.

Jack Dorsey — Chief Executive Officer and Chairman

Yes. Thanks for the question, Bob. I think, first and foremost, the most important thing to point out here that really sets us apart is Square Online store supports all types of businesses. We’re not just focused on retail. We handle restaurants. We handle services, and it’s all through the same interface that brings the entire business together, whether it’s online or through apps or through marketplaces or off-line transactions as well. And the reason why I called that out is because a lot of the newer businesses that we’re seeing are crossing over from these categories.

So we have retailers who also provide services and restaurants who also handle do retail-type things and restaurants doing more services as well. So I think that is what is compelling about our model, but it really sets us apart from all of our peers as well. And again, that leads back to this ecosystem model that we’ve been building. So we are making a bunch of progress on it, but we it’s worth noting that we’re not limiting ourselves to one category of seller. And we want to make sure that we’re managing for all the flexibility of how businesses and merchants and sellers evolve over time because that will ultimately lead them to drive more sales.

Amrita Ahuja — Chief Financial Officer

Just to add to that, Bob, your point your question about progress on Square Online store, one of the metrics that we are encouraged by an early metric is that Square Online Store is becoming an entry point into the broader seller ecosystem, and it’s driving a similar amount of net new sellers to Square as other products like point of sale. So you can have a seller who’s already a part of the Seller ecosystem and possibly has a shop and now wants to expand online, and they’re joining Square Online Store. But you also have net new sellers who are coming online with us through Square Online Store and are joining the Square ecosystem as a part of that.

Bob Napoli — William Blair — Analyst

Great thank you very much. I appreciate it.

Amrita Ahuja — Chief Financial Officer

Thank you very much.

Operator

Our last question comes from Joseph Foresi with Cantor. Your line is open.

Joseph Foresi — Cantor — Analyst

Hi. I was just and I don’t want to take anything away from the Analyst Day and give you an opportunity to plug it as well. But on the Cash App side, I was wondering, could you give us a little bit of color, maybe a sneak preview on what the next functionality for that app is going to be? And then just on the margin profile of that business, any thoughts around time frame and when you might think about when it might scale?

Jack Dorsey — Chief Executive Officer and Chairman

Well, we hope to see you at Analyst Day, so we can give you all that color and not surprise anyone. But I think, generally, from a high level, what we talked about during the opening remarks is the model that we follow. And that is we have a really compelling self-reinforcing model where people can grow the network just simply by sending and receiving money. And we see markers of this all the time. Just looking at the App Store on a Friday, which is payday for a lot of people within this country, sends us up the charts very quickly. So we’ve traditionally looked at what are the most critical needs that we can also add as adjacencies that also reinforce the peer-to-peer aspect and that the peer-to-peer aspect allows to allows us to do.

So that’s how we came up with storing money in Card, and that led to ATMs and direct deposit, which all led to Bitcoin and investing. So we kind of just look at all the opportunities out there that would fit within this ecosystem and also reinforce it and make judgments based off that. But I’m really happy not just with the breadth of what the Cash App team has been able to do but also the quality and the creativity in their approach. It has netted out to be an immensely enjoyable experience but also is really impactful for the people that we’re serving from a very mainstream audience in this country to folks who have not had access to the financial system in the past.

Amrita Ahuja — Chief Financial Officer

And I would just add on your question on margin profile, it’s important to remember that, 3.5 years ago, Cash App had de minimis revenues, and we really started monetizing this business in the past three to four years. And we’re now looking at an ecosystem that has 24 million monthly active customers and over $700 million a year revenue run rate ex Bitcoin. So this team has ramped very quickly, as Jack said, by ramping its products and its customer focus. And in terms of margin, each of the years that we have been monetizing over the past three years, we’ve also seen margin improvements in each of those years. And we expect to just see the same in 2020. So our focus today, first and foremost, is to continue to scale this business and get it in the hands of more customers with even more product functionality.

Joseph Foresi — Cantor — Analyst

Thank you.

Amrita Ahuja — Chief Financial Officer

Thank you.

Operator

I’d like to turn the call back over to the company for closing remarks.

Jason Lee — Head of Investor Relation

Thank you, everyone, for joining our call. I would like to remind everyone that we’ll be hosting our first quarter 2020 earnings call on May 6. Thanks again for participating today.

Operator

[Operator Closing Remarks]

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