Good day, everyone, and welcome to the Block Third Quarter 2023 Earnings Call. Today's call is being recorded. All lines have been muted to prevent background noise, and there will be a question-and-answer session after the speakers' remarks. I would now like to turn the conference over to Nikhil Dixit, Head of Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining our third quarter 2023 earnings call. We have Jack and Amrita with us today. We will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from conference call participants. We would also like to remind everyone that we will be making forward-looking statements on this call. All statements other than statements of historical fact could be deemed to be forward-looking. These forward-looking statements include discussions of our outlook and guidance, as well as our long-term targets and goals, and we may decide to shift our priorities or move away from these targets and goals at any time. These statements are subject to risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will provide a preliminary estimate of performance for the month of October. This represents our current estimate for October performance as we have not yet finalized our financial statements 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 this estimate and may not be reflective of performance for the full fourth quarter. Moreover, this financial information has been prepared solely on the basis of currently available information by, and is the responsibility of, management. This preliminary financial information has not been reviewed or audited by our independent public accounting firm. This preliminary financial information is not a comprehensive statement of our financial results for October or the fourth quarter. Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40, we are evaluating the sum of our gross profit growth and adjusted operating income margins. 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, Historical Financial Information spreadsheet, and Investor Day materials 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 webcast on our Investor Relations website. An audio replay of this call and the transcript for Jack and Amrita's opening remarks will be available on the website shortly. With that, I would like to turn it over to Jack. One moment. We're just getting Jack to reconnect.

I'm sorry, I was on mute. So, we're going to do something a little bit different this year. Thank you all for joining us. I wrote a shareholder letter to you all, which you'll find on our website, and we're going to focus our call to maximize questions. So, we're going to start with Amrita providing more detail into what I wrote, most notably, reaching our Rule of 40 goal in 2026 and authorizing a repurchase of $1 billion in shares to offset a portion of dilution from share-based compensation. If you haven't yet, please read that letter for all the details and what I'm focused on going forward. And with that, I'm going to turn it over to Amrita.

Thanks, Jack. There are four topics I'd like to cover. First, our strong performance in the third quarter and increased profitability expectations for the remainder of the year. Second, a preliminary view of 2024 and where we're demonstrating discipline on our investments to drive margin improvement. Third, our path to achieving Rule of 40 in 2026. And lastly, our capital allocation strategy to deliver value for shareholders. In the third quarter, gross profit was $1.90 billion, up 21% year-over-year. We delivered our highest-ever quarterly adjusted EBITDA of $477 million, or 25% margin on gross profit. Adjusted operating income, which as a reminder includes expenses related to stock-based compensation and depreciation, was $90 million and 5% margin on gross profit, compared to $32 million a year ago. Our strong profitability during the quarter demonstrates our focus on efficiency in pursuit of our investment framework. Cash flow generation has also been strong and improving. Adjusted free cash flow was $427 million in the quarter compared to $88 million in the prior period. For the last 12 months, adjusted free cash flow was $945 million, up from negative $99 million in the prior period. Let's get into Square and Cash App. Square generated $899 million in gross profit, up 15% year-over-year. Square GPV grew 11% year-over-year, or 12% on a constant currency basis. We're committed to serving sellers locally and through our banking products. In the third quarter, we experienced strong growth from our vertical points of sale products with gross profit up 29% year-over-year and our banking products up 20% year-over-year. Cash App generated $984 million in gross profit, an increase of 27% year-over-year. Looking at the components of the inflows framework, as of September, there were 55 million monthly transacting actives, up 11% year-over-year, with growth driven by our peer-to-peer network. Inflows per transacting active averaged $1,132 in the third quarter, up 8% year-over-year, and relatively stable compared to the first half of the year. Monetization rate, which excludes gross profit contributions from our Buy Now Pay Later platform, was 1.43%, up 8 basis points year-over-year, driven primarily by pricing changes over the past year and relatively flat quarter-over-quarter. Turning to our BNPL platform, which contributed $94 million of gross profit to each of Square and Cash App in the third quarter. GMV from our BNPL platform was $6.7 billion in the third quarter, an increase of 24% year-over-year. Losses on consumer receivables were 0.84% of GMV, an improvement quarter-over-quarter and year-over-year. As Jack noted in his letter, in the fourth quarter, we restructured our commerce efforts, moving our BNPL platform into Cash App, as we believe combining the two ecosystems enables us to provide consumer experiences others can't, especially for commerce. From a financial reporting perspective moving forward, we will no longer split 50% of our BNPL platform into each of Cash App and Square. Instead, to reflect the recent organizational change, we'll include 100% of our BNPL platform in Cash App's results beginning in the fourth quarter. During the quarter, we experienced an outage to our services across Block, which impacted both Square and Cash App systems. We know the reliability of our systems is crucial for our customers and are working hard to rebuild trust. The outage lasted about 15 hours on certain products and we estimate it impacted gross profit by less than 1% during the quarter. Our offline capabilities for Square and Cash App enabled our customers to continue to process some transactions during this time. Looking ahead, we are accelerating our efforts to expand offline capabilities to all of our Square products, so sellers won't be worried about missing a sale and are prioritizing building our technical infrastructure with greater redundancy and resilience. Turning now to the fourth quarter of 2023. We are shifting away from monthly trend disclosures in favor of reinstating quarterly and annual gross profit and profit guidance. We expect to continue with this updated approach until we achieve and sustain the Rule of 40. We expect to deliver between $1.96 billion and $1.98 billion in gross profit or 19% growth at the midpoint. For Square, we expect gross profit growth to improve from the third quarter's 15% growth rate as we lap more favorable comparisons from the prior year, and we get the first full quarter benefit from pricing changes on Square Invoices we implemented in the third quarter. For the month of October, we estimate Square GPV was up 9% year-over-year. Our growth has moderated due to both GPV per seller and lower contributions from new cohorts of sellers. We believe GPV per seller has been impacted by macro trends, in discretionary verticals, which continued through October. Although we've achieved positive customer acquisition through the first three quarters of the year, gross profit from seller cohorts onboarded over the past two years are not contributing as much to growth as anticipated, and we're focused on evolving our go-to-market strategy to improve this. For Cash App, we expect gross profit growth to moderate on a year-over-year basis from the third quarter's 27% as we lap stronger growth from the prior year. We continue to expect all three components of the inflows framework to grow on a year-over-year basis in 2023. From a product perspective, we've seen particular strengths in Cash App Card and Borrow, as we drive continued growth in our financial services products. While we've experienced softness in growth from Cash for Business accounts and expect Cash App Business GPV to decline in the fourth quarter. Compared to our prior expectations, growth in the fourth quarter was primarily impacted by expectations for our BNPL platform and, to a lesser extent, Cash App Business GPV and Square GPV. Looking at profitability, we expect to deliver $430 million to $450 million in adjusted EBITDA, and $40 million to $60 million in adjusted operating income in the fourth quarter. And we are raising our full year 2023 profit guide. We expect adjusted EBITDA of $1.66 billion to $1.68 billion, and adjusted operating income of $205 million to $225 million. These are increases of $170 million and $190 million, respectively, at the midpoint compared to our prior guide. For the full year 2023, the midpoint of our guidance implies gross profit growth of 24%, and adjusted operating income margins of 3%, leading to Rule of 27 this year. This reflects meaningful margin expansion in 2023, with the midpoint of our guide reflecting 5 points of adjusted operating income margin improvement and 6 points of adjusted EBITDA margin improvement compared to 2022. Turning now to our path to achieving Rule of 40 in 2026. As a company, we remain focused on balancing growth and profitability. As we look longer term, we're bringing a renewed focus to efficiency, exercising discipline with our expenses, and thinking critically about how we operate to drive leverage. We're going to do all this while also focusing on how we can continue strong top-line growth to capture more of our addressable market. We introduced our investment framework at the beginning of the year and, today, we want to provide more context on when and how we expect to reach our goal. As Jack shared in his Shareholder Letter, we plan to reach Rule of 40 in 2026 with an at least mid-teens gross profit growth and approximately mid-20% adjusted operating income margin. This guidance is based on current trends in our business and does not factor in changes to the macro environment. As we learn more and trends change, our expected mix of growth and profitability may change over time as well. We will continue to monitor trends as we periodically update this view. We see a long runway for continued growth ahead, and in our long-term planning, we've refined our priorities for each of our Square and Cash App ecosystems, which are captured in Jack's Shareholder Letter. We believe we are still less than 5% penetrated against our $200 billion total addressable markets, one which we will work to expand over time in a disciplined way with new products and audiences. In balance with our growth priorities, what you're hearing from us today is a significant commitment to profitability and efficiency across three key initiatives. The first area is through the efficiency of our teams. As Jack outlined in his letter, we are implementing an absolute cap on the number of people we have at our company. We expect to be a smaller team by the end of 2024 compared to where we are today. Our cap of 12,000 people compares to our current size of just over 13,000 people as of the end of the third quarter. We believe constraining team size will enable us to be more effective in how we drive performance and service of our customers and accountability on our business strategies. We expect to reach this cap by the end of 2024 with steps towards this goal throughout the year through a combination of performance management, centralizing teams and functions to reduce duplication, and strict prioritization of our scope, aligned with the priorities outlined in Jack's letter. We expect to hold firm at 12,000 people until we feel the growth of the business has meaningfully outpaced the growth of the company. With greater constraints on team size, we expect to drive meaningful leverage on stock-based compensation as a percentage of gross profit in the years to come, starting in 2024. Second, we are also in the midst of a broad-based effort to reduce our spend across corporate overhead areas. We've identified a number of areas where we expect to find savings such as real estate, process improvements using automation, discretionary spend areas like T&E, and certain vendor relationships across software, data, cloud, consultants, and contractors. Third, within our ecosystems, as we've shared in the past, we've been identifying opportunities to continue improving our cost structure as we optimize unit economics and partnerships by leveraging our scale. Moving to our initial outlook for profitability in 2024, which we expect to be our strongest year of profitability yet. While we are still in the planning process for next year, we expect significant margin expansion as we implement these constraints. We expect to achieve profitability on a GAAP operating income basis in 2024 and to deliver $875 million in adjusted operating income, up approximately 4 times compared to our 2023 guide. We expect to deliver $2.4 billion in adjusted EBITDA, an increase of more than 40% relative to our 2023 guide, and to deliver strong adjusted free cash flow growth next year as well. We plan to share more about our gross profit growth expectations for 2024 during our fourth quarter earnings call in February. Lastly, I wanted to touch on capital allocation and our focus on prioritizing shareholder return. As we progress towards Rule of 40 in the coming years, we expect our margin profile and free cash flow generation to improve, which means we can return more to shareholders over time. Today, we are announcing an initial share repurchase program of $1 billion, which will offset a portion of dilution from share-based compensation and allow us to act opportunistically when we believe our shares are undervalued. We consider share-based compensation in our financial targets as we measure our progress towards Rule of 40, and we want to be responsible in managing the impact of dilution as our company grows. What you hear from us today is an increased commitment to delivering value to our customers and to our shareholders as we execute on the opportunity ahead of us. And with that, I'll turn it back to the operator to start the Q&A portion of the call.

Thank you. We'll take our first question from Tien-Tsin Huang with JPMorgan.

Hey, thanks so much. Really appreciate the cost discipline comments here. Jack, question for you. Just with all this cost framework now laid out, do you think there's still room here for innovation and outsized growth that we've come to know from Block for quite some time? Especially with all the changes and the focus, can we see gross profit growth accelerate between now and 2026? Love to hear your thoughts. Thanks.

Yeah, I think there's even more room for innovation and invention and growth. To be very frank, I believe we're getting in our own way throughout the company. As I've dug in through both the lens of Square and also our investment framework, I just found a lot of silos, a lot of redundancy, a lot of lack of desire for teams to work together. So, I think a lot of what's been holding us back is cultural in that we need to reinvest in why we're building an ecosystem model and how powerful that is. And then number two is around just our structure. We had unclear decision-making throughout the company which led to a lot of slowness especially on the Square side. So, we've been spending the past few weeks just looking at all of that and looking at all of our intersections with our foundational teams, that's our HR and council and financial teams, and making sure that we approach that work very lightly so that we can focus a lot more on getting products and features to our sellers and to our Cash App customers much, much faster. So, I believe we're about to enter a phase of re-acceleration as we look to really hit our goals in R40. And I want to maintain that we're looking to really focus on our customer and retaining our customers as well. So that will always be a checkpoint on all the moves that we make and ultimately how we think about shifting and iterating and experimenting much more.

I would like to add that constraints can often strengthen us, which aligns with what you’re hearing from Jack. The cap on our team size is designed to help us make crucial decisions regarding our priorities and organizational structure, centralizing teams to limit redundancies, enable faster decision-making with clearer accountability, and help us build higher-performing teams across our ecosystem. We will lift this team size limitation when it begins to hinder the growth of our customers or our business, or when our top-line growth surpasses team growth, which isn't the case right now. We are also concentrating on reducing costs outside of personnel that do not affect customers, such as corporate overhead, where we see considerable opportunities to enhance efficiency without impacting customer experience. Regarding our planning process, we acknowledge there is more work ahead. Thus far, we have focused appropriately on cost efficiency opportunities, but also recognize numerous growth opportunities within our ecosystems, some of which Jack has discussed in the letter regarding strategic priorities. The 2026 growth projections we have shared so far are based on our current trends, and we will update them as we gather more information, whether from broader market trends or our own performance. We anticipate that Cash App’s growth will exceed mid-teens growth, while Square’s will be slightly below that. Our aim is to pursue new growth initiatives, and we will integrate those into our outlook over time. We have a strong history of driving innovation in products and engaging new audiences to sustain significant growth, and we will continue to pursue this strategy.

Great, thank you. I want to touch on some of the local sales efforts and the move up markets for the Square ecosystem. In the context of the 12,000 headcount cap, do you feel that there is ample room to show meaningful leverage on both product development and G&A, but at the same time, again, leaving that room to really lean into sales and marketing and specifically in building out some of those local in-market sales teams to help drive seller up market?

Yeah, I do think there's room. I do think there's a lot of areas that we can make more efficient within Square. And I think where we've been lacking on the go-to-market is much more experimentation, and experimentation driven by AI tools as well. We put a focus, as you saw in the letter, it's our number three priority is to utilize and grow with AI. For us, that means increasing the probability of positive outcomes for sales, customer service, which is focused a lot on retention and sales within the ecosystem, and also marketing to make all of those efforts much more efficient in terms of reaching sellers where they are. And it allows us with those efficiencies to experiment a lot more. So, we made a really good move with verticalization of our sales force. We're going to prioritize two verticals in particular, food and beverage, and also services such as beauty. They're inherently local. Our strength is in local. And when we have that in-person strength, whether that be an upmarket seller or a small seller, we can expand our ecosystem through that relationship. So, we're going to continue to focus on that strength. And then, through all those efficiencies that we create with these new AI tools, we'll continue to roll out to our sales staff, to our support staff, and to marketing. I do believe we can experiment and experiment with new things that we haven't tried yet, such as field sales, and learn from them quickly so we can iterate to really good answers.

Hey, thanks, guys. It's great to see the outlook going all the way into the Rule of 40 in '26. But really for now, we get a lot of questions on the sustainability of your Square, the seller business, really just understanding the drivers to the double-digit growth we hope to see. International verticalization, software services, cross-sell, just give us a sense of what the building blocks are to keep that up to those rates? And then also just an add-on to that would be to touch on where you see the success. I know, Jack, you alluded to the company's culture working on the ecosystem. But I guess we'd love to hear more about where you see the success on ecosystem potentially kicking in, where you can see the benefit of that? Thanks, guys.

Yes, I think it's important to revisit the prioritization we've established. My initial weeks with Square have been focused on identifying our key projects and their importance. We need a clear understanding of our priorities, their significance, and their anticipated impact. The platform we are developing is essential for introducing new features that have previously excluded some sellers, and it's vital for advancing our ecosystem strategy, particularly regarding third-party developers. This will enable them to build upon our progress and help us identify future partnership opportunities. I believe this platform will offer significant advantages, and we will see considerable developments next year. Additionally, focusing on local efforts, including local merchants and sales, will yield substantial benefits. We have a strong product, but we've faced some limitations in experimenting with innovative sales approaches, unlike our competitors. We are removing these obstacles to allow for quicker learning and deeper investment in successful initiatives. A significant hurdle on the product side has been our onboarding process, which currently takes too much time. This delays our sellers' engagement, particularly those coming through self-service channels, whether via our website or purchasing hardware from platforms like Amazon. Addressing this will be a major focus and should lead to quick improvements over the next year. As for AI, I mentioned it in my previous response. A key aspect that distinguishes us is our banking services. We currently offer various banking products that help retain our customers. When new users join the Square ecosystem and utilize our loans, debit or credit cards, or savings accounts, it fosters loyalty. We anticipate that banking will also evolve into a significant customer acquisition channel. This is one of our strongest differentiating factors and something we'll take pride in. We possess unique advantages in facilitating banking through Square, which ultimately benefits both our ecosystem and the Cash App ecosystem. In terms of integrating these ecosystems, commerce is where we see a significant opportunity, particularly with local commerce through a Cash App perspective. This is one of our unique strengths, especially as demand for local experiences grows amidst the increasingly uniform nature of online retail. We are well-positioned to provide unique offerings, and we're planning to highlight this as early as next year. There is a clear connection between Cash for Business and Square, allowing users to start with Cash and gradually transition to Square as they scale their operations.

Hi. Thanks for taking my question. And this question dovetails a little bit with a couple of the prior ones, but I wanted to ask about Square Go and the progress you're sort of making connecting consumers to merchants on the platform. If you can kind of talk about the progress you're making on this theme more broadly and what other ways you're exploring to create that sort of consumer demand within the app and ecosystem?

It's great that you asked this question because it reflects our thoughts on connecting the Cash App and Square ecosystems. For those unfamiliar, Square Go is currently focused on services, particularly in the beauty industry. You can download the app, access it in your local city, which is mainly in the U.S. for now, and explore the services available, book appointments, and receive real-time information essential for your appointment. We view this as a means of providing discovery, having started it organically and marketing it to encourage downloads. We've actually seen a surprisingly strong start, highlighting the demand and interest. If you envision how this could expand to a much larger audience like Cash App, those are the areas we aim to explore further. We believe our strength lies in examining the connections between these ecosystems, especially regarding discovery, which is about finding merchants nearby and fostering a strong, lasting relationship between sellers and customers. We think we can enhance that, particularly with everything we've learned from Square Go's market presence so far.

Good afternoon. Jack, I want to ask about Square leadership. You recently took over the leadership of that business after Alyssa's departure. How are you thinking about that going forward? Are you looking for a replacement for Alyssa, or should we expect you to continue to lead? Thank you.

Thank you for the question. I will continue to lead Square until we achieve certain milestones. My goals include returning to significant growth, fostering greater innovation, and better connecting our ecosystems, not only with Cash but also with TIDAL and TBD. TBD will help us expand globally at a quicker pace for both Square and Cash App. We recognize similarities between the challenges faced by musicians and those encountered by small sellers starting out, and many of the same tools will be beneficial for both. I am focused on reaching these milestones and will know when it’s time to find a dedicated lead for Square. This transition has allowed me to identify and quickly address various problems within Square and the company as a whole. We are now addressing longstanding issues, such as the lack of collaboration between our ecosystems and previously established silos, and we are moving toward a stronger organization that will provide significantly more value for our customers, leading to positive outcomes thereafter.

Great. Thanks a lot. I wanted to ask on the path forward for Cash App gross profit and the monetization rate specifically. I think within the guidance for Q4, if we back out Afterpay, it looks like it's embedding a pretty big step-up just in the pace of quarter-over-quarter gross profit dollar growth for Cash App. Amrita, if you could unpack where that improvement is coming from? And then, on the monetization rate, how we should think about its progression over the next year or so? And if there's anything you're able to share on product pipeline specifically there would be great. Thanks a lot.

Thank you for the question. Regarding the monetization rate, we have mentioned before and reiterated today that we are now comparing against some pricing adjustments we made last year. Therefore, we anticipate greater stability in the monetization rate in Q4 compared to Q3. As we mentioned in our Q4 guidance, we also expect a slowdown in Cash App's growth rate in the fourth quarter compared to the third quarter due to these tough comparisons from last year. This comes after strong results in the third quarter, where we saw robust growth in all three segments of Cash App's inflows. Active users grew 11% year-over-year to 55 million, thanks to continued viral growth in our peer-to-peer network. Inflows per active user reached $1,132 for the quarter, an 8% year-over-year increase, remaining stable with the first half of the year. This reflects both our customers' spending power and their engagement with our platform. We have successfully built awareness and deepened engagement with products like Cash App Card and Cash App Borrow, now serving 22 million customers using Cash App Cards, with strong year-over-year spending. The monetization rate was 1.43% in the third quarter, up 8 basis points year-over-year, and relatively stable quarter over quarter, excluding gross profit from our BNPL platform. We expect the monetization rate to stabilize as we compare against last year's pricing changes.

Hey. Thanks for taking my question and all the kind of financial targets provided in the Shareholder Letter. Outside of the more explicit Rule of 40 targets, just curious, how we should evaluate some of the progress you're making on the product side of things and kind of tying the ecosystem together as you've laid out priorities in the letter. Is there a north star to kind of orient folks around to kind of follow along with that progress?

I think the biggest one to look at is going to be commerce and it's going to be through the lens of Cash App that we spent the past few months looking deeply at the Afterpay integration restructuring, that team moving things to Cash App. Because a lot of the value is going to be created there, especially as we bring commerce opportunities, both internet-based and e-commerce-based to local, right to the surface. So that's probably going to be the most notable in terms of connecting these ecosystems. And as I mentioned before, the second one will be the intersection between Cash App for Business and the Square ecosystem. There are some obvious connection points there, especially as Cash App for Business customers grow and how they utilize our tools. And I think a big theme between both ecosystems is going to be around banking use cases, both on the Square side and the Cash App side, actually throughout our entire ecosystem and all our business units. But those would be the three that I'd point to watch.

Hi, good afternoon. Thanks for taking the question. I guess, Jack, my question is just when you assess the seller volumes, how much do you feel like it's pure economic volume that discretionary spend that's slowing some of the volume versus maybe a competitive pressure from the market that you guys can do a better job at? And then I guess going forward, as the comps get easier, do you factor in a little bit more of an economic slowdown in the fourth quarter if that's in the guidance? Thank you.

I'll take the first part of the question. I do believe that by focusing more on the product or features and also getting to parity on particular verticals especially within food and beverage and services, will unlock a lot more growth. There's been certain features that just blocked us out of conversations from restaurants, for instance. And a lot of those will be unlocked soon with our focus on the platform. And I do believe that we can be much smarter and more efficient with our go-to-market. Most importantly, as we've made this move to verticalization, looking for more opportunities to automate through AI, but also to experiment more. I want to make sure that we're experimenting with things that we had not tried before, smaller scale, so we can see what works, and then make better informed decisions about investing more fully in them. I think there's a lot of room there. And that of course has to match what we're doing when a seller no matter the size gets to our website, gets to our dashboard, and they find something simple, intuitive, and they, most importantly, find all the other products that we offer them, not just the one that came on board for. So, the combination of that I think gets us back to a place of growth that we'll be very proud of.

Bryan, I can share some of the real-time numbers we're observing and what is included in our Q4 guidance. In the third quarter, Square's gross payment volume (GPV) grew by 11% year-over-year. Based on our estimates, we believe that if we exclude the impact of the outage, growth would have aligned more closely with the second quarter’s growth rate of 12%. For October, we estimate GPV to grow by 9% year-over-year, which is lower than the 11% from the third quarter. This decline is primarily due to the U.S. market, while international markets have remained more stable. If we analyze the main components of Square's growth—customer acquisition, churn, and same-store growth—we've observed stability in churn, but our overall growth has softened due to same-store growth and a reduced contribution from new customer cohorts. The slowdown in same-store growth appears to be in line with broader macro trends across discretionary sectors. As noted by Jack, we need to improve our customer acquisition strategies, which the team is diligently working on. To provide more detail on same-store growth, GPV per seller indicates that recent moderation has been influenced by macro factors. Processing volumes from existing sellers were lower in the third quarter compared to the previous year. This aligns with other third-party spending indicators we monitor, adjusted for our mix of verticals, since we have a larger focus on discretionary spending and do not cater to grocery or gas sectors, for example. In October, we noticed general weakness in consumer spending trends within discretionary sectors such as food, drink, and retail. We are closely monitoring these trends, which are reflected in our Q4 guidance. Ultimately, our efforts to close feature gaps, innovate, and expedite our go-to-market strategies are areas where we anticipate future growth opportunities.

Thank you very much. I wanted to follow up on Cash App and the goal to expand by providing more banking-type services as mentioned in the letter. How do you view the life cycle of a typical customer that you are onboarding? You are clearly able to offer peer-to-peer transactions, which seems to be the simplest starting point, but then there are bank cards or debit cards along with other products. Can you explain how you think about the development of additional products that these customers may need and how to grow with them, especially as their spending capacity increases?

Yeah. So, as I said in the letter, Cash App is interesting. It sits at this intersection of three very distinct use cases, which are financial services, community-based transactions, which is effectively peer-to-peer, as you mentioned, and commerce. And our approach is ultimately to bring these three together in a very seamless way, define an entirely new product category which reinvents banking for customers. So, a lot of what we started obviously was peer-to-peer and it has inherent network effects and that you're receiving money from friends and sending money to families. So, it is inherently social and inherently has this incredible word of mouth factor. But as you get into it, as you receive money and you see that you can also get a card, that you can use that card in an ATM, that you can invest in Bitcoin or stocks, you start seeing it more and more as a bigger part of your financial spend, in your financial activity and financial life. And our goal now, as we mentioned, is to win more of a banking use case relationship with our existing customers. And what that means is ultimately getting to direct deposit and winning a majority of their direct deposit, because that really indicates that they're seeing this as a financial home for them and they're able to use it in entirely new ways that they weren't be able to in the past. So everything that we've built, again, goes back to this concept of an ecosystem where these tools positively reinforce one another, either through new use cases or through retention or through entirely new features that they can't find elsewhere, and that helps not only drive new customers but also helps us keep them. I think that as I said before earlier in this call, I think the one that we're really excited about because it is fundamentally new to us is around commerce. And as we really deliver against these three financial services, community-based, peer-to-peer transactions and commerce, we have something that I believe is very, very powerful and very unique in the world and continues to build on our strengths, and lends itself to add strength to our other ecosystems, most notably Square.

And I'll just add, James, as we see customers taking on more products within our ecosystem, within Cash App, we see a multiplier effect on the amount of inflows that they bring into Cash App. Whether they start as peer-to-peer and then they take on a Cash App Card, maybe they participate on our free stock investing program or Bitcoin investing, and then eventually getting them to direct deposit their paycheck, which is a significant opportunity from a primary banking relationship standpoint. And that's been a big driver of the growth that we've seen in inflows per transacting active over time as we bring customers greater awareness around the broader set of financial services and commerce products across the ecosystem. What we saw in the third quarter was continued to drive growth in these newer inflow channels. Customers received more than $8 billion in direct deposits into their Cash App accounts in the third quarter, and more than $2 billion of paper money deposits in the third quarter. Both grew approximately 40% year-over-year, which is nearly 2 times as fast as the growth of overall inflows into Cash App. So obviously, more opportunity for us to do here as we see the direct deposit attached still in that sort of 10% range to Cash App Card monthly actives through September, although we've obviously continued to grow our Cash App Card attached through this period of time, we think we have an opportunity to improve both attach rates to Cash App Card as well as direct deposit and this broadening ecosystem of financial services products for Cash App.

Hey, guys. Thanks for taking my question. Maybe more for Jack. I think that the Analyst Day and, obviously, you're very prominent talking about Bitcoin. Bitcoin is now having a renaissance. What is kind of the role of Bitcoin right now in terms of your vision of connecting the ecosystem, the holy grail, and specifically the Cash App? I'm really interested in hearing your views on that. Thank you.

Our focus on Bitcoin stems from our belief that the internet will ultimately need a native currency to facilitate global micro payments. We began by offering a simple exchange for buying and selling Bitcoin. Over time, we see a substantial market opportunity in remittances using Bitcoin, which is the core focus of TBD. This initiative not only represents a significant business opportunity but also enhances the capabilities of our other ecosystems, such as Square and Cash App, allowing us to advance more rapidly on a global scale as we develop necessary functionalities and tools for developers. I believe Bitcoin will continue to appreciate in value, both monetarily and in its practical applications worldwide, and it will play a crucial role in the future of commerce. Given our early insights and leadership in this space, we are well-positioned for success. We have always anticipated that this would be a long-term strategy, which remains the case, but it is clear that the internet will have a native currency, and Bitcoin stands out as the leading candidate.

Now, I want to emphasize that you've heard from us today an increasing focus on our ambitions and growth for the business, along with maintaining discipline in how we operate. We will also be disciplined regarding our Bitcoin initiatives, adhering to a specific investment framework and regularly tracking progress against those key milestones.

Thanks, guys. I wanted to come back to the vertical point of sale in Square. You had the gross profit of 29% there. Is that growth rate sustainable over the next few quarters? And I'm curious what percent of Square's total gross profit is now coming from vertical point of sale? And then separately, if you could just make a quick comment on what you're expecting for stock-based comp expense both this year and next year? Thank you.

In the third quarter, we experienced strong growth in our vertical point of sale and developer solutions. The gross profit from our vertical point of sale products across retail, restaurants, and appointments increased by 29% year-over-year, and the growth in our developer tools also surpassed the overall growth of Square's gross profit. As mentioned last quarter, each of our vertical point of sale products generated over $100 million in gross profit on an annualized basis during the third quarter. We will focus on optimizing our go-to-market strategy, enhancing onboarding processes, and testing new channels. While I cannot provide a specific forecast for vertical point of sale going forward, we do anticipate that Square's gross profit growth in the fourth quarter will improve compared to the third quarter, due in part to more favorable comparisons and the full quarter impact of the pricing changes we implemented for Square Invoices during the third quarter. Regarding your second question about stock-based compensation? Sure. We anticipate that stock-based compensation in the fourth quarter will remain relatively flat in terms of absolute dollar amount compared to the third quarter. As mentioned earlier, we plan to achieve significant efficiency in stock-based compensation over time starting in 2024. We will evaluate this by measuring stock-based compensation as a percentage of gross profit as we implement a cap on the total number of employees at the company and aim to increase operational efficiency across our business. This area is a major focus for us. Stock-based compensation is a crucial tool for aligning the incentives of our employees and shareholders as owners of the business, but we are mindful of it and have intentionally included it in our financial goals and adjusted operating income to monitor the potential dilution. This is also part of the rationale behind our announced $1 billion buyback, which aims to offset some of the dilution in the future.

Good evening. Thank you for the question. Jack, I wanted to explore the go-to-market strategy on the Square side. Connecting some points from earlier discussions, it seems like Square might be considering more involvement with the ISO channel for distributing its products. Is this something that's on your agenda? Have you tried this approach before? Do you think Square needs to engage more with the ISO channel to compete effectively? Thank you.

We have previously explored financial partnerships, including a collaboration with JPMorgan Chase, where we distributed score readers at all their branches. The key takeaway is that we need to conduct more experiments with various models, as the solutions will vary by industry. For instance, distribution looks different for restaurants compared to services, beauty, or retail. It's crucial that we remain open to more small-scale experiments for a while to determine what works and then make larger investments. We are currently focusing on immediate experiments, such as contracts, which are showing early success through local campaigns. We are also exploring more partnerships and specifically referrals, which remind us of our early growth through word-of-mouth referrals. Additionally, we need to ensure that we prioritize the experiences sellers have when they access our services or visit our website. These aspects are the main factors driving our strategy.

Thanks. I appreciate you sneaking me in here at the end. Amrita, the Cash App monetization framework has always been really helpful. Could you unpack a little bit sources of monetization within Cash App? I'm thinking specifically about Instant Deposit versus Interchange, and how that's changed over time? And how you think about the Instant Deposit product in particular in a real-time payments world?

Sure. Thank you for the question, Andrew. We've expanded our product offerings within Cash App, including both free and monetized options, and we've accelerated the monetization of some products beyond Instant Deposit. Consequently, our reliance on Instant Deposit has decreased over time, even though it's still a growing product with distinct customer benefits. Our priority is to maximize value throughout our ecosystem with various products. This is evident in the significant growth of the Cash App Card, with 22 million users, and 40% penetration among our 55 million monthly active users. We are also seeing strong year-over-year growth in per-active spending, which has continued into the third quarter. Additionally, features like peer-to-peer transfers, paper money deposits, direct deposits, ATM withdrawals, investment options, and savings capabilities enhance the overall utility of Cash App. Many of the inflows that remain within the Cash App ecosystem are actively utilized across its features. Historically, in other countries with instant payment systems, like the UK where we also offer an Instant Transfer product, we have observed similar strong attach rates for that product as in the U.S., indicating that users are willing to invest in integrated product experiences that offer value. We will keep monitoring this aspect, but we are pleased with the ongoing growth of Instant Deposit, and even more with the expansion of our other Cash App products.

Thank you. And that does conclude Block's third quarter earnings call. Thank you for your participation.