Categories Earnings Call Transcripts, Finance

Square, Inc. (SQ) Q3 2021 Earnings Call Transcript

SQ Earnings Call - Final Transcript

Square, Inc. (NYSE: SQ) Q3 2021 earnings call dated Nov. 04, 2021

Corporate Participants:

Nikhil Dixit — Head of Investor Relations

Jack Dorsey — Chief Executive Officer

Amrita Ahuja — Chief Financial Officer

Analysts:

Tien-Tsin Huang — JPMorgan — Analyst

Darrin Peller — Wolfe Research — Analyst

Andrea Aguirre — The Art of Donut — Analyst

Lisa Ellis — MoffettNathanson — Analyst

Timothy Chiodo — Credit Suisse — Analyst

Trevor Williams — Jefferies — Analyst

Harshita Rawat — Bernstein — Analyst

Josh Beck — KBCM — Analyst

Ramsey El-Assal — Barclays — Analyst

Bryan Keane — Deutsche Bank — Analyst

David Togut — Evercore ISI — Analyst

George Mihalos — Cowen — Analyst

Dan Dolev — Mizuho — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Square Third Quarter 2021 Earnings Conference Call. I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead.

Nikhil Dixit — Head of Investor Relations

Hi, everyone. Thanks for joining our third quarter 2021 earnings call. We have Jack and Amrita with us today. We will begin the call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from our customers in addition to questions from conference call participants.

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

Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call will be available on our website shortly. With that, I would like to turn it over to Jack.

Jack Dorsey — Chief Executive Officer

Thank you all for your time today. In our Seller ecosystem, we continue to build upon our omnichannel capabilities, and those efforts have enabled us to attract and retain larger sellers, while also helping our existing sellers grow a market. This quarter, we enhanced our Square Invoices product to help sellers more efficiently run their business. Square Invoices enable sellers to easily bill clients and get paid quickly in-person, online or over the phone. In the third quarter, we introduced Square Invoices Plus, a new subscription product with more advanced features designed for larger and more complex businesses.

We also continue to expand our geographic reach, launching a full stack of integrated seller tools in France in September, our most robust market launch yet. French businesses can now sell online and in person with Square’s integrated suite of products, including Square Point of Sale, Square for Restaurants, Square Online, Square Terminal, Square Stand, Square Reader and more. We’re excited about France, given its strong small business environment, increased usage in contactless payments and its fast-growing e-commerce cycle.

Switching to Cash App. We reached a major milestone this quarter in expanding our offerings to families by serving teens, an entirely new demographic for Cash App. With this launch, customers in the U.S. between the ages of 13 and 17 get access to Cash App’s massive P2P network, the Cash Card, Direct Deposit and Boost, all with parental or guardian approval. By lowering the age barrier, we hope to expand access to the financial system to 20 million teens in the U.S. and equip them with the tools they need to participate in the cashless economy, which is especially important now as transacting with physical cash becomes less relevant in the increasingly digital world. With Cash App, families can help their teens learn about how to manage the money they earn from the allowance, jobs and chores with the appropriate protections in place.

As we’ve talked about, our strength lies in our ecosystem model, especially as our ecosystems connect together. In the third quarter, we launched Cash App Pay in the U.S., a new contactless payment method for online and in-person transactions. With Cash App Pay, individuals can seamlessly pay with their Cash App account at Square Sellers using the QR code or tapping a button on their mobile device to checkout. As contactless options and QR codes have become more mainstream, Cash App Pay has become a top requested feature at both Cash App customers and Square Sellers. This integration further expands Cash App’s commerce capabilities and helps us meet customers where they are, providing more flexibility in their payment options. Cash App Pay also enables us to offer sellers a new and innovative way to bring commerce to life for their customers.

Lastly, we continue to serve our purpose of economic empowerment in all that we do. But we want to build on that strength to explore opportunities beyond our existing ecosystems to serve new markets. We have a few emerging initiatives we’re investing behind into 2022. For example, with the acquisition of TIDAL, we’re building tools for artists, starting with musicians.

We also recently created a business called TBD in order to build an open developer platform, with the sole goal of making it easy to create noncustodial, permissionless and decentralized financial services with a focus on Bitcoin. We plan to share detailed plans with a white paper later this month.

We announced two more Bitcoin initiatives as well, the consumer Bitcoin Hardware Wallet and a Bitcoin mining system. Both are focused on helping Bitcoin reach a mainstream audience, while at the same time, strengthening the network and ecosystem. We will build both in the open, in collaboration with the community, sharing all of our decisions, progress and questions along the way. We see each of these long-term opportunities that we will be learning from over multiple years.

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

Amrita Ahuja — Chief Financial Officer

Thanks, Jack. There are three topics I’d like to cover today. First, a look at our performance in the third quarter of 2021; second, an update on our Seller and Cash App ecosystems in October; and third, a look at where we intend to invest in the fourth quarter of 2021 and in 2022, given the compelling growth opportunities ahead.

In the third quarter, gross profit was $1.13 billion, an increase of 43% year-over-year or 51% on a two-year CAGR basis. Adjusted EBITDA was $233 million. Both Seller and Cash App showed strong fundamentals during the quarter. Seller generated gross profit of $606 million, up 48% year-over-year or 29% on a two-year CAGR basis.

A few growth drivers to call out here. First, we’ve made strides growing upmarket as our ecosystem has resonated with larger sellers. In the third quarter, mid-market sellers are those with more than $0.5 million in annualized GPV, grew gross profit nearly twice as fast as our overall seller business on a two-year CAGR basis and have surpassed micro sellers to make up our largest segment of GPV. Our momentum with mid-market sellers in recent quarters has been driven by acquisitions of larger sellers as well as our ability to help small sellers grow on our platform.

Second, software and integrated payments remained the fastest-growing product in the Seller ecosystem on a gross profit basis, as sellers value the breadth of our ecosystem. Square Invoices in particular, experienced strong growth, processing $12 billion in GPV over the last 12 months, up nearly 2 times from two years ago. Cash App generated gross profit of $512 million, up 33% year-over-year or 104% on a two-year CAGR basis, with strong engagement and inflows.

Inflows or money pulled into our ecosystem, achieved strong growth on a two-year CAGR basis, even as most government disbursement programs ended. Product adoption has been a key driver of overall inflows, and we continue to see an increase in attach rates for products using Cash Card.

In the third quarter, Cash Card active brought in approximately 70% more inflows each month than non-Cash Card actives. We also saw an increase in paycheck deposits as we’ve made direct deposit and bank transfers easier and more visible to customers.

Next, we wanted to share an update on our business through October and what we’re seeing real time. As a reminder, we believe two-year CAGRs will better reflect underlying trends in our business. For sellers, we expect gross profit in October to grow by 45% year-over-year or approximately 30% on a two-year CAGR basis, relatively in line with growth in the third quarter. Total GPV was up 24% on a two-year CAGR basis.

We’ve been encouraged by relatively stable growth rates in the past few quarters, though we recognize there are still impacts from COVID in certain parts of the U.S. and our international markets, which could impact TBD trends. For Cash App in October, we expect gross profit growth of greater than 35% year-over-year or greater than 90% on a two-year CAGR basis. As we had expected, we saw normalization in the two-year gross profit CAGR from July to October, as government disbursements ended. On a year-over-year basis, gross profit growth has been relatively stable, around the 35% range from August through October. We’ve seen strong engagement here across our broader ecosystem of products and are enthusiastic about our recent launches and product road map, which brings me to our intended investment for the fourth quarter of 2021 and a preliminary view of our focus areas for 2022.

In the fourth quarter, we expect to increase non-GAAP operating expenses, excluding risk loss, by approximately $115 million compared to the third quarter. Looking to 2022, we see significant investment opportunities across our business and remain focused on driving long-term profitable growth. Next year, we expect to grow non-GAAP operating expenses by approximately 40% year-over-year compared to 2021 or approximately $1.3 billion of incremental spend across product development to build out our teams, sales and marketing to drive acquisition and G&A to expand support in each of our ecosystems. This figure excludes impacts from Afterpay, which we expect to close in the first quarter of 2022.

Let’s take a look at where we’re focusing our investments. For Seller, we’ll be investing behind our strategic priorities of enabling omnichannel, growing globally and growing up market with larger sellers. Given the strong growth and lifetime value and gross profit per customer that we’ve seen over time in our Seller business, we’re comfortable lengthening our payback period up to the six-quarter range as we scale sales and marketing and increase our mix of go-to-market investments across international, brand awareness and our sales teams.

For Cash App, our strategic priorities remain strengthening our network, driving engagement and attracting more inflows into our ecosystem. Heading into 2022, we’re focused on advancing these priorities by investing behind new and emerging product areas. First, enabling more commerce for our customers, including the recent launch of Cash App Pay and potential future opportunities with Afterpay, following the closing of the transaction; second, providing more financial services by expanding our product set and unlocking new inflow channels in the Cash App; and third, improving the health of our platform and promoting positive behavior by growing support and expanding access.

Finally, as Jack mentioned, we now also have emerging areas of growth that we’re investing behind, and we’ll be tracking our progress against milestones over multiple years. These include TIDAL, TBD, The Hardware Wallet and Bitcoin Mining, which we expect will in aggregate represent roughly 5% of our incremental step-up next year for approximately $140 million in overall non-GAAP opex.

As we look ahead, we’re excited for what the future holds for our company. We are going after a large and growing addressable market, and we see strong signals on how our products resonate for our customers with compelling unit economics. As a result, we are deliberately investing to reach new audiences, increase the utility for existing customers and expand our product set as we have done over time.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have the first question, comes from the line of Tien-Tsin Huang with JPMorgan. Your line is now open. You may ask a question.

Tien-Tsin Huang — JPMorgan — Analyst

Thanks so much and thanks for the update. I wanted to ask about Cash App Pay, if that’s okay. And I know, Jack, you’ve been talking about connecting the two ecosystems. So how important is this in that effort? And what’s the strategy to grow this payment method overall? I’ve been thinking that you’ll need to drive more inflows, like direct deposits to really get it going. So maybe, you don’t mind updating us on the inflow strategy, that would be great. Thanks.

Jack Dorsey — Chief Executive Officer

Yes. So I would first see this as a focus on the importance of Cash App moving more and more into our commerce relationship. So we have these incredible firewall loop and network effects and peer to peer. And now we get to look forward towards being more of a commerce front-end. Fortunately, we have another ecosystem at scale that focuses on sellers in omnichannel commerce, so it’s easy for us to test a lot of these theories out and actually scale them up over time.

Obviously, we do believe that having these multiple ecosystems is our ultimate superpower and differentiator. So you have both ends of the counter, two different audiences and sellers and individuals is really important. There’s a thesis behind Afterpay as well, and that probably represents the largest potential for connecting ecosystems, but any connection we make between these ecosystems strengthens the overall value of our broader ecosystem and we think our value to customers and the company generally as well.

In terms of direct deposit, direct deposit is one form of inflow. We’ve done a lot to make sure that we are making it more accessible. We’re putting it more upfront in the interface. So you’ll notice bunch of navigational changes that we made or more of a focus on direct deposit. But generally, there’s a number of ways people get money into Cash App, not just through paycheck, but tax refunds, stimulus checks. And we want to make sure that it’s intuitive and easy for all those and be ready for many people on the scale.

I think the other announcement to look towards in this light is what we just did for families. So allowing any parent or guardian to turn on Cash App for their kids, who can also use peer-to-peer Direct Deposit and the Cash Card, unlocks an entirely new population for us, and we’ll still benefit from those base level network effects that have grown Cash App in the first place.

So we have — we’re going after this problem in multiple ways, interface, new products and features like Cash App for families. And then taking every opportunity we have to connect the ecosystems. But the thing that I think is most interesting here in Cash App Pay is that it really allows us to open the door around Cash App being a commerce front end.

Operator

Thank you. And next question, we have the line of Darrin Peller of Wolfe Research. Your line is now open. You may ask a question.

Darrin Peller — Wolfe Research — Analyst

Hey. Thanks, guys. Nice trends. I just want to start off and kind of follow-up on Tien-Tsin’s question around Cash App a bit. Just given the impact of stimulus, it’s likely running off a bit now, it’s — I think it’s still impressive just to see two-year CAGRs at 104%. I just really love to hear what your view is on the drivers of incremental engagement per user, like sort of touching on the new capabilities and strategies from here on out through Cash App, really pre-Afterpay, along with the potential levels, we’d be able to reach? Just thinking about what the potential engagement transaction levels, revenue per user, where that can go over the next couple of years? Thanks, guys.

Amrita Ahuja — Chief Financial Officer

Hey, Darrin. Happy to take that one. I think it’s instructive to look at where Cash App is focusing. From a priority perspective, both in aggregate across the ecosystem as well as from a product development perspective, to inform where we could see potential future growth. So as ever in — as we head into the fourth quarter and into 2022, our strategic priorities remain strengthening our overall network, driving engagement and attracting more inflows. And to advance these priorities, we’ll continue investing behind product development, sales and marketing for customer acquisition and support and operations, which underpins the entire platform.

From a product development perspective, we’re prioritizing a few longer-term focus areas, which I think really get to your question around how we drive long-term growth ARPU and lifetime value for our customers by ultimately driving greater utility for our customers. So first, from a commerce perspective, as you’ve heard from Jack at the beginning of building out a commerce platform for Cash App, you see that with Cash App Pay, you see that with teens, you see that with what we’re going to be doing in the future with Afterpay and other new experiences to drive greater utility and engagement.

From a financial services perspective, we’re expanding our banking capabilities, including new inflow channels in the Cash App and exploring new products like Borrow to help drive engagement and attract more inflows into the network.

From a health perspective, we’re scaling support, we’re expanding access and we’re doing this responsibly to encourage good behavior on our platform, which again further strengthens the network effects and the ability for people to bring funds in and use them across multiple products. And we’re building out full stack teams dedicated to each of these areas in 2022, and you’ll see that in our hiring plan and product development to drive continued product road map velocity.

From a marketing perspective, we’re investing to drive acquisitions for new customers, with a focus on reaching higher lifetime value customers and newer demographics. And as we’ve seen gross profit and lifetime value per customer grow historically, we’ve begun to increase our customer acquisition costs above the historical $5 range, which we believe is too efficient, given the opportunities that we see ahead.

So some of the levers that go into that to drive investment in 2022 and future growth: paid marketing, this is where we can ramp our paid channels and is a growing portion of our spend; referrals, which makes enhancements — we’re going to make an enhancement to the overall referral program and use it as a way to cross-sell our ecosystem as well; and awareness, which grows the ability for people to come in and adopt products beyond peer-to-peer, and it includes reaching new types of customers beyond our existing demographics and it advances Cash App’s lifestyle brand as a true differentiator; and finally, support and the foundation on which our platform is built.

The growth of Cash App has outpaced our investment, frankly, with customers adopting more and more products. And in 2022, we’re going to grow our health team. We’ll continue to build out our support and our infrastructure to align with Cash App’s astounding growth. Part of that is deposits and limits, initiatives to reduce friction around inflow sources and add new inflow channels. And part of it is some of the more recent things you’ve seen, like we recently launched in-app support messaging to all customers, and that’s quickly become the majority of inquiries.

We’ll be dynamic with the spend, we’ll track returns, but we’re excited about these initiatives — strategic initiatives and investment areas to drive future growth for us, ultimately driving utility and engagement with the Cash App ecosystem.

Operator

Thank you. Next question, we have question from a Square Seller, Andy Aguirre from The Art of Donut. Your line is now open. You may ask a question.

Andrea Aguirre — The Art of Donut — Analyst

Hello. My name is Andrea. I’m a business owner here in San Antonio, Texas. I own a crafted donut shop, and we use the all Square features available at the moment. My question was like coming from a full truck to a brick-and-mortar location as we continue to expand, one of the most important things is to ensure that we have all the integrated products we need to roll up market. And do you — can we expect to see Square introduce features as we look to expand?

Jack Dorsey — Chief Executive Officer

Yes, 100%. And thank you for using Square. So we built our ecosystem with exactly this in mind. We started close to 13 years ago with a very simple solution of accepting credit cards and that was meant for sole proprietors and the smallest of businesses. But we want to make sure that we were able to scale ahead of our sellers’ ambitions. So if they decided to get a physical location, they decided to have multiple locations, hire more employees, all those things, we don’t want to get in the way of that. So all of our tools are meant to scale from very small to the very large and progressively disclose more and more sophistication as the complexity of your business increases.

One of the recent areas that we wanted to help solve is around employee management, and we acquired this company called Crew that allows us to — it allows our sellers to have a messaging platform so that they can help manage all their employees and all their needs, so they continue to focus on what’s most important, which is the customers. So it’s really important to us that we’re not getting in the way of any of our sellers growth. And I think we show that by being supportive of the very small, but also of the largest like stadiums, who have thousands of vendors of all sizes working under them.

Operator

Thank you. We have the next question, comes from the line of Lisa Ellis of MoffettNathanson. Your line is now open. You may ask a question.

Lisa Ellis — MoffettNathanson — Analyst

Good afternoon. Thanks. I’m going to switch over to the Seller ecosystem. You called out Seller’s international expansion in the prepared remarks, particularly the recent expansion into France. Can you just remind us how much of Seller’s GP is derived from ex-U.S. markets and how fast that piece is growing? And looking forward, maybe for Amrita, where your priority investment areas are looking internationally as you look into ’22? Thank you.

Jack Dorsey — Chief Executive Officer

And maybe I’ll start this off and Amrita can follow-up. So as we look at a new market for Sellers, we want to make sure that we’re, number one, looking at the market and understanding like the level of small businesses and entrepreneurship within each one. And then we want to invest in brand and product awareness. And then after that, it’s not just launching one product or getting to parity across all of our products across all of our global geos. And then finally like look at expanding into new markets, where we think there’s a high potential for success, because we do require a partnership with a local bank and there’s differences in local regulatory. This has to be a very deliberate decision. So we’ve made very conscious choices around what markets we’re in and why. And there’s still a lot of opportunity for us to open more of our products in more of the markets that we’re already in, such as Square Loans in more of the places that we already exist. So that is our focus. So it’s a balance between getting to parity in the markets that we’re in with all of our products, but also looking at entirely new markets as well, France being next.

Amrita Ahuja — Chief Financial Officer

And Lisa, I’ll add that our markets outside the U.S. have seen strong growth in the third quarter despite periodic lockdowns. We saw those markets growing faster than the U.S. So they are growing because those international markets are growing as a mix of our Seller business. And they continue, to your point, about next year and our future strategic priorities, will continue to be focus area for us, an investment opportunity for the future.

As I said, Seller’s strategic priorities as we look ahead are enabling omnichannel, going global and growing upmarket. On the going global piece to your question, it’s a key part of our sales and marketing initiatives for next year and a key piece of why we’re comfortable expanding our payback up to the six-quarter range as we see a greater mix of spend in sales and marketing towards brand spend and international areas.

What those key sales and marketing investments are — brand and awareness, to drive reach and top of funnel demand, particularly with larger sellers and across the breadth of the ecosystem; performance, which continues to be our largest percentage of mix; and then global, scaling sales and marketing in these markets outside the U.S., which is growing faster than the U.S. and where we’ve seen paybacks improve over time.

We’ll be ramping our spend in these markets outside the U.S. in 2022, given the new geographies that we’re in, including France, Ireland and with the beta in Spain as well as potential new launches for the future. We expect these areas to have lower ROI in early years and improve over time, and we see them as a critical strategic area for us for the future that we want to invest into, given the strong product market fit and how our products are resonating in these markets.

Also a key piece of the investments we make, of course, in product development to localize and expand these services and features for each of these markets, closing the product gap, that Jack was talking about these international markets and from a support perspective, to make sure that these sellers can reach us with any of their needs across international as well as the U.S. So a key focus area for us and very strategic for the future.

Operator

Thank you. Next question comes from the line of Timothy Chiodo of Credit Suisse. Your line is now open. You may ask a question.

Timothy Chiodo — Credit Suisse — Analyst

Great. Thank you for taking the questions. I want to dig into the large seller approach in 2022 and beyond. And I’m really bringing this up in light of the potential for a more bundled approach to work with those large sellers, and that’s including some of the big online enterprise customers that have relationships with Afterpay. So I was hoping we could talk just a little bit about that full suite or a bundle of offerings that could be sold into those large sellers, whether it’s buy now, pay later, the Cash App Pay button or your more traditional payments processing or unbranded, if you will, and then, of course, other services that Square offers? And really, the thought being there is it might allow Square to have a more competitive or sort of a unique angle when talking with those large enterprises.

Jack Dorsey — Chief Executive Officer

Yes. This is exactly it. As I said earlier, this is one of our biggest strengths is that we do have ecosystems that are cohesive. They’re very broad in their tool sets. So it allows us to reach sellers in a much more cohesive way, especially given the maturity of our developer platforms. Even I’m one of the seller and I have legacy tools or tools that are very custom and specifically I can still integrate with Square in a way that’s needed. I would definitely point to the number of stadiums that we’ve turned on as proof of that. And that also shows like the potential for bundling as you say.

We believe that after closing the transaction now that they can add ability to drive commerce across full sellers and individuals. We think it’s a really smart connection between the two ecosystems. Obviously, Afterpay is — has done very well with retailers. And that’s both on the seller side and also on the individual side. You think there was natural homes within our Seller business and also Cash App.

So back to the comment on Cash App Pay, like the more Cash App is seen as the commerce front-end, from discovery to transactions, the stronger our relationship brings unless not just on the cash up side but also on the Square seller side. And as we look to integrate after the transaction closes, we have even more opportunity.

Operator

Thank you. Next question, we have the line of Trevor Williams of Jefferies. Your line is now open. You may ask a question.

Trevor Williams — Jefferies — Analyst

Great. Thanks. Good afternoon. And I’ll throw another one in on the Cash App. So as we look at the size of your user base, like 40 million monthly actives, that puts you at a scale that very few banks are close to. I mean, how do you think of the benefits of scale or what competitive advantage a larger user base gives you beyond just having more users to monetize? I mean you have network effects on the peer-to-peer side, but just trying to get at how a larger user base can unlock a higher level of monetization? I mean the benefit from when you plug in Afterpay, that seems pretty clear, but just thinking more on Cash App as a standalone today, really what the scale advantages are? Thanks so much.

Jack Dorsey — Chief Executive Officer

Yes. I think — I mean, I think, number one, like it gives us a lot more opportunity to strengthen our existing products but also create new products on top of Cash App as a foundation. And those can be products for both individuals and customers, but also for sellers as well, as more and more commerce moves online and purely digital and is not found offline. We do have businesses using Cash App because it’s a fast, easy way for them to transact and it’s familiar for their customers. And even that goes upon the network effect. But I guess I would directionally point you back to discovery. With a larger base of customers, we get more opportunity to introduce discovery features to our network. And we have the starts of those things and Boost for instance, where we can highlight a particular activity or a particular seller, whether it be in your neighborhood or nationwide. And I think there’s a lot more to come there.

And we have the benefit of, again, having a seller network and ecosystem that we can further turn on to all of our Cash App customers. And as we have more — as we have a compelling product experience around discovery, local-run businesses around them become really important, and they open access even to an even greater group. So I think there’s a lot of potential in having the scale we have. But I feel we can go much, much higher and that’s the intention. And especially as we think of our Cash App outside the U.S. and U.K., which really excites me as well as being more global.

Amrita Ahuja — Chief Financial Officer

And I’d add, Trevor, that I think a key focus area for us is the engagement of this customer base. As we said back in June, nearly two-thirds of those 40 million monthly actives that you referenced, transacted each week on average across our Cash App ecosystem. So the more we can do there to make this a daily utility, to make our ability to provide customers value on a regular basis and throughout the day, the more opportunity we have to drive further network effects, drive further engagement and ultimately drive higher lifetime values, which then enables us to invest back into the ecosystem and provide differentiated value to these customers. So I think both the reach of the network and the driving continued engagement are key priorities for us.

Operator

Thank you. Next question comes from the line of Harshita Rawat of Bernstein. Your line is open. You may ask a question.

Harshita Rawat — Bernstein — Analyst

Good afternoon. Thanks for taking our question. Jack, I want to follow-up on your prepared remarks regarding Bitcoin. Are you looking to expand into crypto beyond Bitcoin buy and sell? For example, buy and sell of other cryptocurrencies and also enabling your users to kind of engage in defined NFT ecosystems? Thank you.

Jack Dorsey — Chief Executive Officer

We’re not. Our focus is on helping Bitcoin to become the native currency for the Internet. And so we run — we have a number of initiatives towards that goal. Cash App is just one. We’re going to be building a Hardware Wallet. We’re exploring Bitcoin Mining, a consumer device to mine Bitcoin at home or in a business, or seller businesses, in fact. We believe this focus is important. We believe it’s right. And a lot of it has to do with the resilience, the fundamentals, the principles that Bitcoin offers. And we also want to make sure that we’re giving back to the community as much as possible. And this is also reflected in our approaches for Bitcoin Wallet, Bitcoin Mining and our new business unit called TBD, which is focused on building a developer platform to enable more ideas around decentralized finance on the Bitcoin stack, and on that stability that it offers and all the resilience that’s had over the decade plus. So we’re going to release more details on what TBD is doing with a white paper on November 19. And we’re really excited about the direction and excited about our focus.

Operator

Thank you. Next question comes from the line of Josh Beck of KBCM. Your line is now open. You may ask a question.

Josh Beck — KBCM — Analyst

Thank you, team, for taking the question. I wanted to shift gears back to Cash App. Obviously, the demographic of the age is expanding and certainly getting into that 13-plus category. So I’m curious what you view as right, defining elements of Cash App for that segment? Obviously, there are a couple of private companies also focused on teens and tweens, if you will. So just curious on how you would frame that and where you see that opportunity headed in the next few years?

Jack Dorsey — Chief Executive Officer

Yes. I mean this is a — it’s a really big launch for us because we’re — it’s been a huge request by Cash App customers that we’re finally able to fulfill. Obviously, this is to a much larger population that we don’t have access to before, 20 million teens in the United States. But then it’s going to our fundamentals that are strong, the peer-to-peer fundamentals, just receiving, being able to receive money from your friend, you send money to your friends or from your parents; being able to get a Cash Card, design the Cash Card, even the Cash Card that glows in the dark and being able to use it and take a — my parents can send me my allowance or I can call the workforce and actually use the direct deposit functionality. So most everything that you would expect from Cash App will exist with this feature set, but it’ll have controls for the parents or the guardian.

So we think it’s a great way to get into the space. It’s a start. We definitely hope to expand it, but all the strength that we have in building the network effects of our business and all the products that we offer, will benefit now from a much larger audience, and we’ll continue to take on the responsibility and help that we have with things like Bitcoin and the savings account and Cash Card and stocks as we have with the main Cash App. So we’re always going to provide as much information as possible, so people can be responsible and healthy with their finances. And that will definitely include how we think about Cash App for families and for teens.

Amrita Ahuja — Chief Financial Officer

Josh, I would just add that I think some of the key differentiating factors for Cash App here is the scale of the network effects, which drives the utility ultimately for these teens and for their families; and the aspirational brand that Cash App has cultivated through the years, which is truly authentic certainly with Gen Z and certainly with this audience; and then third, as Jack said, the strength of the broader network, the fact that it’s not just Cash Card, it’s not just peer-to-peer, but there are so many other things that you’ll be able to do over time, which enables that sort of financial inclusion for this audience. And those are the things that truly differentiate Cash App for this product and for this audience.

Operator

Thank you. We have the next question, comes from the line of Ramsey El-Assal of Barclays. Your line is now open. You may ask a question.

Ramsey El-Assal — Barclays — Analyst

Hi. Thanks so much for taking my question this evening. I wanted to ask about an ACH acceptance tool that I think you guys announced earlier in the year in partnership with Plaid. And then sort of at a high level, what are your thoughts more broadly on pay by bank and other types of payments that don’t rely on the traditional card rails? And maybe if I can tack one on, are you planning to offer a pay with Bitcoin feature through Cash App Pay at some point? Thanks.

Jack Dorsey — Chief Executive Officer

Yes. So I think what you’re referencing is maybe the sellers accepting ACH bank transfer payments, which definitely have a lower processing fee. So we’re always looking for opportunities to add efficiency to the stack, both for Sellers and for Cash App. As soon as we have the foundational infrastructure and interface in place, we find ways to make it even more efficient, cheaper for our customers. In terms of Cash App Pay and Bitcoin and specifically, lightning functionality probably in that realm, it’s definitely something that the foundation will allow. And we’re — as I said before, like our focus is on helping Bitcoin to be the native currency for the Internet. So currency aspects of it and of the network are really important to us, and we’re going to do more in that space.

Operator

Thank you. We have the next question, comes from the line of Bryan Keane from Deutsche Bank. Your line is now open. You may ask a question.

Bryan Keane — Deutsche Bank — Analyst

Hi, guys. Thanks for taking the question. Just wanted to ask about — on the Cash App, how much stimulus is still impacting the numbers? Just curious on the saving rate for Cash App users and their balances right now. And I know you guys are doing several things to get balances up on Cash App. So I’d just be interested in figuring out a little bit about that. Thanks.

Amrita Ahuja — Chief Financial Officer

Okay. Happy to take this one. Maybe we’ll hit balance as quickly first. You saw customer balances slightly down quarter-over-quarter, up 143% on a year-over-year basis. We would really orient you, though, to look at inflows more broadly as balances are just a measure of growth at a snapshot in time at the end of the quarter. And so what we really orient to, as we think about the health of the network is, of course, as we said, overall network size engagement but also inflows. What we’ve seen is that as we had expected, as the government disbursements came to the end largely during the third quarter, we saw normalization in the two-year CAGR rate on gross profit from July to October. On a year-over-year basis, though we’ve seen relative stability from August to October in around that 35% range on a year-over-year basis, in October, we expect growth on gross profit of greater than 35% year-over-year and greater than 90% on a two-year CAGR basis.

And then as we look ahead, of course, when we think about our customer spending power, which is ultimately what impacts inflows, what we’re focused on for the long term is all those key priorities that we laid out for the year ahead around commerce platform that we’re building around financial services, around the health of the network, which enables us to ultimately bring more deposits, more inflows into the ecosystem and enables our customers to then use them in more ways across the ecosystem. And I think ultimately, that’s in the medium to long term, what drives inflows for Cash App.

Operator

Thank you. We have the next question, comes from the line of David Togut of Evercore ISI. Your line is now open. You may ask a question.

David Togut — Evercore ISI — Analyst

Thanks so much. I’d like to better understand your closed-loop strategy with Afterpay. We’ve been following your BNPL pilot in Cash App, which appears to be defaulting payments to store balances. Given your store balances were around $2 billion at the end of 2020 and constantly being refilled, it seems that BNPL with Afterpay at Square Sellers could generate significant transaction margin benefits. Can you help us better understand your closed-loop strategy with Afterpay?

Amrita Ahuja — Chief Financial Officer

Sure, I can jump in on this one. I think what we’re focused on ultimately is the product experience for our customers and the commerce platform that we’re building, which this payment type enables us to drive things like in-app discovery within cash. And as we’ve seen with Afterpay, that with their own app, they’ve been driving historically 1 million leads a day to some of their enterprise merchants.

So when you think about beyond just the payment type that BNPL enables or even things like Cash App Pay enables, really the strategic imperative here for us is the commerce enablement that the integration of Afterpay enables for us, with both Cash App and with our Seller ecosystem. Of course, there will be opportunities to think about cost savings over time, but The Street’s heated focus is on commerce and in-app discovery for us.

Operator

Thank you. We have the next question, comes from the line of George Mihalos of Cowen. Your line is now open. You may ask a question.

George Mihalos — Cowen — Analyst

Great. Thanks for taking my question. Just wanted to ask as it relates to Cash App and the importance of the Cash Card, can you remind us how penetrated Cash Card is within the Cash App ecosystem? And then maybe, Amrita, you can kind of update us on the breakdown of different revenue sources within Cash App, the instant P2P Cash Card and the like? Thank you.

Amrita Ahuja — Chief Financial Officer

Sure. So to hit Cash Card first, we continue to see strong adoption here for Cash Card with our customers. It is our highest attached product outside of peer-to-peer. What we had shared back in March is that 7 million customers within Cash App are using Cash Card on a weekly basis. We’re seeing it drive regular utility for our customers. That rate of weekly usage had nearly doubled year-over-year, growing faster than the monthly active Cash Card customers.

They’re using — Cash Card customers are using the card for everyday purchases, for food, for transportation at major retailers, really signaling that customers want to use Cash Card to manage their everyday expenses. Obviously, Boost is a piece of that, with the unique rewards and offerings that we have here to drive that utility and awareness around Card. And we’ve also been working on expanding functionality for Cash Card globally. As of third quarter, customers can now use Cash Card in person and online in many countries outside the U.S.

And when we think about the importance of driving attached to products like Cash Card, what we see is that these customers are highly engaged across our ecosystem on other products. Historically, we’ve seen Cash Card actives adopt nearly twice the number of products as non-Cash Card customers, which has led to greater money brought into Cash App overall. Obviously, we shared that stat, that in this quarter, Cash Card actives brought 70% more inflows into the ecosystem on average than non-Cash Card actives. And it was a key driver of overall inflow growth for us. So we see a real opportunity here to grow engagement and monetization both with Cash Card and beyond Cash Card as customers take on more and more products like investing in direct deposit.

And I think the second part of your question is the breakdown of revenue sources. We continue to see a diversification in the utility of the different products we have within Cash App, and it’s a key focus area for us to drive that product adoption across Cash App as well as to drive ultimately monetization and regular engagement. And that is something that, especially as we look ahead, when we look at the product road map ahead, we expect to see even greater diversification over time.

Operator

Thank you. And we now have time for one last question, and that line comes from Ryan Coyne of Mizuho. Your line is now open. You may ask a question.

Dan Dolev — Mizuho — Analyst

Hey. Thanks. It’s actually Dan Dolev here — sorry for the mix up — from Mizuho. Thanks for taking my question. So really quickly on — can you maybe quantify the potential upside from Credit Karma and tax for next year for the Cash App, if any? Thank you.

Jack Dorsey — Chief Executive Officer

Yes. Just to start, we — the reason we did this is it helps expand our direct deposit strategy and brings more inflows into Cash App, gives more information to customers to understand how tax filing will work on Cash App this tax season. And we think there’s a lot of opportunity to simplify a bunch of task that one has to do in the financial system, tax is a big one. And we want to make sure that we have a successful product launch ahead of the tax refund season. So customers have a really seamless experience and we’re highlighting Direct Deposit and another potentially powerful inflow for us.

Operator

[Operator Closing Remarks]

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