Earnings Call Transcript
Block, Inc. (XYZ)
Earnings Call Transcript - XYZ Q4 2023
Nikhil Dixit, Head of Investor Relations
Good day, ladies and gentlemen, and welcome to the Block Fourth Quarter 2023 Earnings Conference Call. I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead. Hi, everyone, thanks for joining our Fourth Quarter 2023 Earnings Call. We have Jack and Amrita with us today. We will start with some brief remarks before opening the floor to your questions. During the Q&A, we will take questions from conference call participants. We also want to remind everyone that we will be making forward-looking statements during this call. Any statements that are not historical facts could be seen as forward-looking. These forward-looking statements involve our outlook and guidance, as well as our long-term targets and goals, and we may choose to change our priorities or alter these targets and goals at any time. These statements carry risks and uncertainties. Actual results could vary significantly from what our forward-looking statements suggest. Reported results should not imply future performance. Please review our SEC filings for details on the factors that might cause discrepancies in our results. Also, note that the forward-looking statements made during this call are based on the information available to us as of today. We do not commit to updating any forward-looking statements unless required by law. During this call, we will also discuss Cash App's banking services provided through our bank partners. Additionally, we will highlight metrics related to our investment framework, including the Rule of 40, where we evaluate some of our gross profit growth alongside adjusted operating income margins. We will also cover certain non-GAAP financial measures, with reconciliations to the most comparable GAAP financial measures available in the shareholder letter and our historical financial information spreadsheet on our Investor Relations site. These non-GAAP measures are not intended to replace our GAAP results. Finally, the entire call is being audio webcast on our Investor Relations website. An audio replay of this call and the transcript of Jack and Amrita's opening remarks will be accessible on our website soon. With that, I would like to turn it over to Jack.
Jack Dorsey, CEO
Thank you all for joining us. Last quarter, I focused on the Shareholder Letter on how we're going to grow Square through four priorities. This quarter our letter is about Cash App strategy and our goal to become one of the top providers of banking services to households in the U.S. If you haven't yet, please read that letter for details. As we did last quarter to maximize time for your questions, we're going to focus our opening remarks on Amrita providing more details on the financials. Over to Amrita.
Amrita Ahuja, CFO
Thank you, Jack. I have two main topics to discuss. First, I will review our full year and fourth quarter performance for 2023, where we experienced strong growth and significant profitability improvements, advancing our investment framework. Second, I will outline our expectations for 2024, including our first quarter guidance, recent trends, and strategies to enhance our Rule of 40 metrics. Starting with our performance in 2023, we finished the year with $7.5 billion in gross profit, which is a 25% increase year-over-year, or 24% on a combined basis. Our strong emphasis on efficiency led to improved profitability. Adjusted EBITDA reached $1.79 billion, an increase of 81% year-over-year, and represented a 24% margin on gross profit, the highest we have achieved. Our adjusted operating income, which includes stock-based compensation and depreciation expenses, was $351 million, our best performance yet, with a 5% margin on gross profit, a recovery from a loss of $145 million the previous year. We also improved cash flow generation, with adjusted free cash flow for 2023 reaching $515 million, compared to a negative $346 million in the prior year. Overall, we achieved a combined company Rule of 29 in 2023, slightly exceeding our third quarter guidance. In terms of gross profit retention, which indicates how well we retain customers and reflect the value of our products and services, both Square and Cash App achieved positive retention across our annual cohorts in 2023. Square experienced strength in software and banking, despite some weakness in processing volumes, while Cash App saw growth in inflows per active user, aided by our financial services and price adjustments. In the fourth quarter, we reported gross profit of $2.03 billion, a 22% increase year-over-year. Adjusted EBITDA for the quarter was $562 million, and adjusted operating income was $185 million, both surpassing our guidance due to a disciplined approach in discretionary spending. However, on a GAAP basis, we reported an operating loss of $131 million, mainly due to a goodwill impairment of $132 million, severance costs of $70 million related to recent organizational changes, and lease impairment restructuring expenses of $34 million. Additionally, starting in the fourth quarter, we consolidated our BNPL platform into Cash App, which has been reflected in our financial results. Regarding the specifics for Square and Cash App in Q4, Square generated $828 million in gross profit, up 18% year-over-year, with GPV increasing 10% in the fourth quarter. Although we saw positive customer acquisition and stable churn, GPV per seller was affected by reduced discretionary spending in the U.S. We also witnessed diminished contribution from newer seller cohorts. Our online payment volumes remained strong, rising 11% year-over-year, but this was partially counteracted by a decline in manual key entry volumes. We anticipate challenges from manual transactions to persist for the foreseeable future, although as software-assisted payments gain traction, we expect their impacts to ease. Cash App reported $1.18 billion in gross profit for the fourth quarter, a 25% year-over-year increase. Cash App also saw a rise in monthly active transacting users to 56 million, which is a 9% increase year-over-year. Inflows for active users averaged $1,137 in Q4, an 8% rise year-over-year, as more customers adopted our financial services. The Cash App Card continues to grow, reaching 23 million monthly active users in December, or over 40% of our total active customer base, reflecting a 20% increase from the previous year. Additionally, we achieved a monetization rate of 1.48%, up 9 basis points year-over-year. On our BNPL platform, we generated $242 million in gross profit during the fourth quarter, with GMV reaching $8.6 billion, a 25% increase year-over-year, primarily supported by our Pay-in-Four offering and single-use payments. Losses on consumer receivables have remained consistent with historical ranges. As mentioned earlier, integrating commerce payment tools is a focus for us in the coming year, and we see significant potential in utilizing BNPL through the Cash App Card. Looking ahead, we are committed to reaching our Rule of 40 target by 2026. For 2024, our primary goal is to improve upon the Rule of 29 we achieved in 2023. We have set an initial guidance that we believe we can surpass by at least one percentage point in terms of gross profit growth or adjusted operating income margins, or both. For the year, we aim for a minimum of $8.65 billion in gross profit, representing at least a 15% increase year-over-year. We expect Cash App to grow more quickly than Square, although overall growth may moderate compared to 2023 due to the effects of prior pricing changes and initiatives that enhanced our cost structure. In 2024 and beyond, we will concentrate on enhancing engagement through increased product adoption and speed of product offerings. We anticipate growth will continue to be driven by software and integrated payments as well as banking solutions within Square. We believe that our strategic initiatives and investments in marketing will improve seller acquisition in the coming years. On the profitability front, we are raising our annual guidance. We currently expect adjusted operating income to be at least $1.15 billion, surpassing our earlier estimate of $875 million, and adjusted EBITDA of at least $2.63 billion, up from $2.4 billion. This reflects a significant year-over-year margin expansion of approximately 9 points for adjusted operating income and about 7 points for adjusted EBITDA. We plan to manage costs effectively to achieve improvements in share-based compensation expenses relative to gross profit compared to 2023. Our guidance for Q1 2024 estimates gross profit to fall between $2 billion and $2.02 billion, suggesting a growth rate of 17% at the midpoint. We expect Square's gross profit and GPV to see slight moderation from Q4's respective rates of 18% and 10%. Recent weather conditions have impacted Square GPV in the U.S., particularly in January, where it resulted in a 3 to 4 point decrease in growth, and certain regions saw reductions in in-person volumes, especially in the food service and retail sectors. For Cash App, we expect growth to continue driven by increases in active users and inflows per user in Q1. We forecast that the growth rate for gross profit will moderate relative to the 25% in Q4, facing tougher year-over-year comparisons. Lastly, we plan to achieve both quarter-over-quarter and year-over-year growth, projecting adjusted operating income of $225 million to $245 million and adjusted EBITDA of $570 million to $590 million for the quarter. The midpoints signify margins of 12% and 29%, with year-over-year growth rates of 361% and 57%, respectively, highlighting our continued focus on sustainable, profitable growth. Now, I will turn it back to the operator to begin the Q&A session.
Operator, Operator
Thank you. Your first question comes from Tien-Tsin Huang from J.P. Morgan. Please go ahead.
Tien-Tsin Huang, Analyst
Thank you. Thank you. So, you acted really quickly here on costs. So I want to ask how quickly you can just add growth in 2024. Really product velocity is the question here. In your letter, Jack, you talk about closing product gaps and Cash App and reclaiming leadership in engineering and design at Square. How quickly can you get there? And when might we see some measurable benefits to growth in 2024? Thanks.
Jack Dorsey, CEO
Yes, in all our business units, we have been simplifying our operations to improve speed. This includes Square, Cash App, TIDAL, and TBD, so you can expect increased product velocity overall. Specifically for Square, we are prioritizing platform improvements to enhance our speed in delivering features, particularly for food and beverage customers. This year, we have initiatives like pre-off that will help unlock greater efficiency across restaurants, retail, and services, which I believe will lead to strong results. Regarding Cash App, we have been heavily focused on building our banking relationships. We have validated our model through the success of the Cash App Card, which has directed our efforts towards appealing to users earning between $100,000 and $150,000, encouraging them to use Cash App as their main bank. One key indicator of this is the percentage of their direct deposits that go into Cash App. We plan to move quickly with a more focused roadmap targeting banking, as mentioned in the shareholder letter, and we anticipate positive outcomes from this focus, which will also allow us to advance our strategies for families and transforming into a social bank. Cash App already has social elements, starting with peer-to-peer transactions, and we see the potential for deeper social engagement and enhancing local payments, which ties back to Square. We're prioritizing our Square customers within Cash App so you can witness the benefits of our integrated ecosystems and networks.
Amrita Ahuja, CFO
And I'd just add, Tien-Tsin. Just tie this together with our 2024 outlook. Our guidance philosophy is to guide based on our current run rate trends in our business. What we're seeing in the business quarter-to-date as of earnings and known expense and growth levers that we've incorporated into our plan entering the year. So a lot of the refocused strategy and key growth initiatives that we're discussing are not included in our 2024 expectations, given how recent they are. And they provide us with opportunities to outperform relative to this initial guidance, whether it's the product platform or go-to-market experimentation within the Square business or the Cash App bank the base strategy, we're hard at work at each of those elements. And we expect those to deliver for us as we get into later into the year in 2025 and beyond, but still early days.
Operator, Operator
Your next question comes from the line of Timothy Chiodo from UBS. Please go ahead.
Timothy Chiodo, Analyst
Great. Thank you for taking the question. I wanted to dig in a little bit to the Square distribution approach. You've talked about building out the vertical outbound sales team and also potentially experimenting with local in-market sales teams. And also saw in the shareholder letter, you mentioned the revamped referral program. But maybe you could expand upon how Square views the potential to partner with banks and ISOs. So adding bank partners for distribution, adding ISOs to get broader coverage across the nation, and the various considerations and how you sort of view the potential for that in the future? Thank you.
Jack Dorsey, CEO
Yes. We're open to this and have tried it in the past during our early years. As many of you know, J.P. Morgan Chase was one of our initial Series B investors, and we placed Square readers in every branch across the United States. Unfortunately, that strategy was not very effective. The expectations of customers, particularly in business banking, were misaligned. However, this doesn't imply that all channels are ineffective, as we see some of our competitors succeeding. We are receptive to these channels and willing to explore them further. The key focus for Square is on our go-to-market approach and the product itself. One important initiative we plan to implement soon is simplifying our app presence. Currently, we have about four or five apps in the App Store, which makes it confusing for users to navigate. This confusion is compounded by how Apple's search results display these apps. To address this, we plan to consolidate to one app named Square. This means anyone can simply go to Square or download it, and everything they need will be included. The interface, navigation, and features will adapt based on the type of merchant. We believe this will provide a much clearer experience, making it easier for merchants—whether a solo proprietor or a multi-location business—to set up and utilize the app. We have had substantial success with self-service, and as we enhance our referral capabilities, particularly in the food, beverage, and restaurant sectors, we aim to streamline how these businesses access and use the app. Our goal is to achieve all of this this year, which we believe will unlock significant growth and improve our distribution efforts, especially through targeted partnerships with ISOs and banks. We are also committed to retention, which is a major focus. Furthermore, banking is a vital aspect of our strategy. We have nine market products that will continue to strengthen, differentiating us from our competitors. We provide an ecosystem that supports the entire business, offering business banking products such as cards, credit lines, and loans, all integrated into a single app. This approach is unique and incredibly valuable to our sellers, which we believe will lead to outstanding results.
Timothy Chiodo, Analyst
Thank you, Jack.
Operator, Operator
Your next question comes from the line of Darrin Peller from Wolfe Research. Please go ahead.
Darrin Peller, Analyst
Hey, guys. Thank you. Just to hone in a little bit more on direct deposit, it obviously is moving to the forefront around Cash App for your strategy on it. And look, I mean, we obviously see a notable set of banking assets you've been able to package for your MAUs. But if you can just expand on what you see actually driving adoption or accelerated adoption of direct deposit, now getting that 2 million to say, 5 million or 10 million users versus I know there's been some prior attempts to make that happen. And then, Jack, maybe just what timeframe would you consider a success on this front in terms of an incremental, maybe 5% or 10% of Cash App users taking on direct deposit?
Jack Dorsey, CEO
I think the biggest driver is going to be easy connected banking features that just work and that people can trust. We want to make sure that people see Cash App as reliable, as dependable, as something that they trust their money within their full direct deposit of their paycheck with. And trust is the one input, but a big factor of that is the output. What can I actually do with it? And the Cash App Card has been one of our most successful products, within Cash App. It's extremely easy to get a card. It's extremely easy to personalize it, to use it, to change it, to give it to family members. So there's a lot that's attractive there. There are some gaps that we're missing that traditional banks offer that we do not. But really, the roadmap is filling those gaps and doing so in an intuitive, well-designed way, that feels fresh and benefits from technology to give time back to the customer. And then as people see that and as people use it and they talk with their friends and their family about it, that's the growth. That's how direct deposit grows. And people, again trust us more and more to put more of their paycheck in the Cash App, because they know they can use it in very traditional ways that are reliable, but also entirely new ways. And it all fits together perfectly and seamlessly. So, expectations, we want to move as fast as possible. The fact that we're no longer focusing on expanding globally, for right now, we're focusing on banking. Our base in the United States is going to allow us to move much faster, and I think we'll see outcomes much faster than we have traditionally. And this is the base foundation for our other two priorities, which is moving more upmarket with families, which we've seen some early positive signs from. And then really going after being at the social bank, starting with peer-to-peer, but expanding beyond that and really getting into neighborhoods and local communities and focusing a lot more on commerce. So all these tools add up to a desire, we believe, to put more of my money with Cash App and use it there, and hopefully more and more it becomes 100%.
Amrita Ahuja, CFO
And Darrin, just to go a little bit deeper on some of the actual features that we think will be compelling for customers. We've got a bunch of features, we're rolling out more features to give customers an experience beyond what's available in the market today. So today, we think our direct deposit offering is differentiated with no fees or minimums, early direct deposit availability, and the benefit of our active money being in the broader Cash App ecosystem, where they can send, spend on Cash App Card or Cash App Pay, invest it, et cetera. We're also focused on the new products and features that drive engagement. So, for example, we recently launched free overdraft coverage up to a certain amount. We introduced yield on savings balances and allowed for automatic paycheck distributions. So we're prioritizing launching products that customers expect from us before they start bringing in more of their money. Today, it's about 2 million paycheck deposit actives as of December, about 3% of our monthly actives. But this will be one of the key KPIs, along with broader inflows proactive, that we're focused on driving forward as part of our bank-to-base strategy.
Darrin Peller, Analyst
That's great. Thanks, guys.
Operator, Operator
Your next question comes from the line of Mike Ng from Goldman Sachs. Please go ahead.
Mike Ng, Analyst
Hey, good afternoon, and thank you very much for the question. I think your 2024 outlook implies OpEx growth of about 4%. Would you just discuss your confidence in being able to achieve that at least 15% gross profit growth against the backdrop of this tight cost management? And then what signals are you looking for in deciding whether to invest in OpEx more aggressively again? Thank you.
Amrita Ahuja, CFO
I can start maybe with a reminder of kind of the key areas of operating expense leverage that we've been pursuing and which we believe still continue to have opportunity against. And that those constraints are clarifying for us, actually in supporting further scoping, prioritization, and operational excellence in how our teams operate. But the key categories being one personnel, obviously, you heard from us last quarter our constraint around people, which at the 12,000 person cap, which we're currently operating under and expect to for some time, that unlocks a tremendous amount of leverage for us, both from a non-GAAP operating expense perspective as well as leverage from an SBC perspective. And you see that reflected in our expectations for 2024. And that constraint, again, is what leads to stronger prioritization and focus in the areas that will impact our customers the most and ultimately lead to profitable growth. The other key focus area for us is around corporate overhead expenses, where we've already seen opportunity to get more efficient, whether it's things like third-party spend with vendors, real estate, T&E, data and cloud fees, professional fees, et cetera. We have an opportunity to continue to refine how we operate, to make sure that we are operating with the greatest amount of discipline, constraint, and efficiency. And then as we look longer term, of course, there are new technologies like AI, that we can be leveraging in-house, not only in terms of the products that we're serving our customers, but that deliver efficiency to our teams internally, whether it's customer service or sales or engineering and design. And then, of course, structural costs, which we've already made some headway on with some partner renegotiations last year, but will continue to pursue in terms of unit economic improvement across our base of products. So there are a number of different areas for us that we've already been digging deep into, and for us to continue to do that, that actually support our opportunity to continue to grow our platforms and grow our overall gross profit.
Mike Ng, Analyst
Great. Thank you, Amrita.
Jack Dorsey, CEO
The two points I want to emphasize relate to AI. You have all been hearing about AI's role in boosting efficiency during these calls, and it will significantly impact us as we evaluate our initiatives and the tools we are developing, enhancing the productivity of our engineers. In the near future, our designers will also benefit, enabling us to learn and ship products more quickly, correct errors faster, and maintain a competitive edge rooted in creativity by integrating complex systems. Additionally, about three years ago, we were focused on fostering a wide range of initiatives, which led to inefficiencies across our ecosystems, particularly between Square and Cash App, resulting in duplication of tools and high costs. We have undertaken considerable efforts to address these issues, and while progress has been made, I believe there is still more work to do. As a result, we can operate more swiftly and efficiently due to these improvements and the reduction in reliance on various tools that were redundant and addressing the same needs.
Mike Ng, Analyst
That's very helpful. Thank you, Jack. Thank you, Amrita.
Operator, Operator
Your next question comes from the line of Harshita Rawat from Bernstein. Please go ahead.
Harshita Rawat, Analyst
Good afternoon. I would like to inquire about Cash App and its commerce growth. Cash App is expanding quickly, albeit from a small starting point. Can you provide some insight into the makeup of these volumes, particularly among Square merchants that operate online? You've recently formed some intriguing partnerships with merchant acquirers to enable Cash App Pay as an online payment option. What key strategies can you implement to enhance Cash App Pay's adoption in e-commerce? Additionally, can you discuss your compliance investments related to KYC? Thank you.
Amrita Ahuja, CFO
Yeah, I'll start off Harshita on Cash App Pay. We're really excited about the progress that we've seen over the past year and how quickly we've been able to drive growth, as we've expanded to more and more merchants. This is a key part of how we integrate commerce tools, and more broadly into Cash App over the next several years. We see Cash App Pay as a seamless way for customers to spend, especially online, and provides more ways for our customers to spend beyond using Cash App Card. We ended December with 3 million monthly actives and $2.5 billion in annualized GPV, which has more than tripled since what we reported you last June. Growth here has been driven through recent partnerships such as DoorDash, Adient, and Stripe. We have a strong pipeline as well of large merchants. We're exploring to continue to extend our reach. Of course, Afterpay's enterprise sales team has been critical here and allowed us to scale quickly by leveraging existing relationships and the quality of their sales organization. I think the second part of your question was about Cash App commerce or can you repeat the other? Do we answer your question, Harshita?
Harshita Rawat, Analyst
Oh, yes. Yes, so just the compliance investment, just more broadly within Cash App, not just related to Cash App Pay, especially as we focus now more into banking.
Jack Dorsey, CEO
Yes, definitely. Compliance involves addressing complaints, security, fraud, and risk, all of which require ongoing adjustments. We will never create a flawless system; our priority is on speed and efficiency. Our aim is to rapidly rectify any issues we previously encountered and integrate those lessons for the future. We must stay significantly ahead of any challengers, which has been a major focus of ours for years. Currently, we are placing even greater importance on this because we want to build more trust with our banking services, as being the primary bank for individuals is crucial. Trust is a key component, and we want people to feel confident that they can deposit their entire paycheck into Cash App without any limitations and that everything functions smoothly. This is a major investment for us, and we plan to continue expanding. We now have access to entirely new technologies that enhance our processes, allowing us to be more comprehensive and precise in our approach than we have ever been before.
Harshita Rawat, Analyst
That's helpful.
Operator, Operator
Your next question comes from the line of Trevor Williams from Jefferies. Please go ahead.
Trevor Williams, Analyst
Great. Thanks for taking the question. I want to follow up on the product pipeline in Cash App, especially around commerce and the new products you expect to layer in this year. In the letter, Cash App Card was mentioned as a way to distribute BNPL, which I think that's something we haven't heard from you guys before. If you could dig into that. And then just how much contribution at least within what you're expecting for Cash App that you're baking in from some of these newer initiatives around commerce within the full-year outlook. Thanks.
Jack Dorsey, CEO
We have been working extensively since we acquired Afterpay. Initially, we divided our focus between Square and Cash App, but we recognized last year that this approach was not optimal. Going forward, we will concentrate most of our efforts within Cash App, where we anticipate the most significant benefits. This includes enhancing the discovery of commerce, whether it's global e-commerce or local commerce through Square merchants. Afterpay is a valuable asset for us, as is the Cash App Card, which provides great distribution. We aim to integrate all the financial tools that Afterpay offers directly into Cash App and the card. Just as users can activate boosts and receive offers in the Cash Card app, we want to create a similar experience for Buy Now, Pay Later on the card. This would allow our customers to treat every merchant as a Buy Now, Pay Later option, which is exciting. There are numerous opportunities with the financial tools in Cash App and the Afterpay app in Australia. This year, we plan to integrate these tools more tightly and increase their visibility within Cash App.
Amrita Ahuja, CFO
And in terms of how we think about our outlook with respect to some of these newer products that we'll be launching later this year and into next year. As I said earlier, our guide is based on primarily on our current run rate trends in the business, and known elements around expenses and growth levers. And typically, we're moving quickly to improve our product velocity. But typically, as we launch these products they take time to ramp. So I'd expect to see greater benefits later in the year, but primarily heading into 2025 and beyond, as we move quickly against these commerce and banking and financial services products within Cash App.
Operator, Operator
Your next question comes from the line of Bryan Bergin from TD Cowen. Please go ahead.
Bryan Bergin, Analyst
Great. Thanks so much for taking the question. Do your broader banking aspirations require you to do anything different on the banking license side, or ask differently, should your efforts in the banking side be successful? Can you still leverage partner banks or do you need to go with direct licenses? Thanks.
Jack Dorsey, CEO
Great question. We don't necessarily need to change our approach. We have Square Financial Services, our bank, and we are excited about the broader range of potential use cases beyond the current ones focused on loans. Our goal is to ensure that the bank enhances our efficiency and speed, providing tighter integration for more cohesive experiences. We are not restricted from utilizing partner banks; rather, we can think of this as a portfolio where we can access multiple banks, including our own, for various future needs. This gives us significant flexibility as we advance. Ultimately, the product experience we can deliver is what will guide our efforts, leveraging new technology to offer a more convenient and profitable solution than traditional banks. This remains our focus, and we do not anticipate major changes in our product development strategy going forward.
Bryan Bergin, Analyst
Great. Thanks very much.
Operator, Operator
Your next question comes from the line of Ken Suchoski from Autonomous Research. Please go ahead.
Kenneth Suchoski, Analyst
Hi, good afternoon. Thanks for taking the question. I think you mentioned in the quarterly letter that the 2022 and 2023 Square cohorts are tracking to a six-to-seven quarterly payback period. How are you guys thinking about the payback period for 2024 and 2025? And if you can comment on how you're thinking about marketing spend in Square for the year, that would be great. Thanks so much.
Amrita Ahuja, CFO
Sure. Happy to kick off on what we've seen recently and what we expect moving forward. As we orient primarily to ROI, the returns that we see over a four-year period in how we go to market across the Square ecosystem. And as we are able to attach more products to our customers as they are able to grow on our platform that extends the lifetime value of these customers and ultimately what we're able to invest into go-to-market initiatives to bring customers into the Square ecosystem. So I would orient you more to ROIs where we've seen healthy ROIs at sort of 3x over four years in the past, and we'll continue to focus on ROI moving forward. Across our initiatives, I think the key focus for us is the pace of experimentation across both sales and marketing. We're going to orient more of our spend in marketing to proven channels, but we'll have a number of our efforts from a team perspective on trying new things in small ways so that we can iterate rapidly and learn whether that's in sales, where we've now deployed contracts, or where we're taking a local approach with referrals, or we're bundling our products differently, as we did with the restaurant's essentials bundle to create simple pricing, one simple price for a set of customers across the restaurants vertical. We are doing a number of different things to drive cohesion in how a customer can onboard into the Square ecosystem. And as Jack mentioned earlier, some of the product initiatives around our single app strategy and our platform initiatives are key unlocks for us as we think about more efficient onboarding of customers into the broader ecosystem.
Jack Dorsey, CEO
I would like to add that, as I mentioned in the letter, we are reorganizing Square back to a functional structure. One outcome of this is bringing product and marketing much closer together. This approach is how we initially established the company. We believe that the gaps we've experienced recently have negatively impacted our ambitions and execution. Our goal is to ensure that there is a seamless transition from our marketing efforts, whether targeted or more broad, to the actual sign-up process and customer experience when they visit our website or reach out to one of our sales representatives. I believe this organizational structure will help address many of the challenges we've faced previously. We are committed to improving collaboration between these teams so we can operate more efficiently.
Kenneth Suchoski, Analyst
Great. Thanks, Jack. Thanks, Amrita.
Operator, Operator
Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead.
Bryan Keane, Analyst
Hi, guys. Wanted to ask about the Cash App monetization rate. I think it was up 5 basis points sequentially. If I recall correctly, I think you thought it would be more stable sequentially. So, I guess, what kind of surprise and drove the outperformance in the monetization rate? I think you called out Bitcoin and pricing. So just curious, exactly on the pricing side where that's coming from? And then any color on how monetization rate will trend as we go through 2024.
Amrita Ahuja, CFO
Sure. So what we saw in the fourth quarter was 9 basis point improvement year-over-year and 5 basis point quarter-over-quarter. To your question specifically on quarter-over-quarter, there are a couple of different factors at play, but the primary ones were around Bitcoin, and within Bitcoin, it was both the pricing of the product as well as the price appreciation of Bitcoin itself, which benefited monetization rate on a sequential basis. As we look forward, we see opportunities in 2024 around actives and inflows proactive as the primary drivers of growth for Cash App in 2024. As we look longer term, we see opportunities around monetization rate as we go deeper in the financial services ecosystem and we attach more of these products to our customer base, as our customers take on more and more products themselves, we see an opportunity to grow monetization rate. But as we'll be lapping some of these pricing changes coming up in 2024, we don't expect a meaningful change in monetization rate, and certainly not at the meaningful level that we saw during 2023.
Bryan Keane, Analyst
Thank you.
Operator, Operator
Your next question comes from the line of Pete Christiansen from Citi. Please go ahead.
Peter Christiansen, Analyst
Thank you. Good evening, and thanks for the question. I'm curious, could you walk us through the mechanics on the yield, the savings product for direct deposit users, and Cash App. And Amrita, I'm curious your thesis on, I guess, the relative unit economics for that particular product, and how you see that evolving. Thank you.
Amrita Ahuja, CFO
Yeah. You know that the overall strategy is that as customers save more of their funds with us, they make us more of their primary banking partner and then we can offer them more financial services, some of which we monetize. We have had a history of thinking about our ecosystem in terms of the entirety of the value we provide with some products being free, like our tax product, our investing product, our peer-to-peer product, when you use a debit card, and some products being monetized. And with a savings launch where we're offering a yield for customers who direct deposit with us, a strong yield for customers who direct deposit with us at 4.5%, and a more modest yield for customers who use Cash App Card at about 1.5%. What we're providing is an incentive for customers to bring more inflows into Cash App. And we see a strong correlation with inflows into Cash App driving gross profit and customers being more engaged with the broader set of products across Cash App. What we've seen so far, look, it's early days of these savings balances. We have balances from Cash App Savings accounts totaled 200 million as of the end of the fourth quarter, representing 6% of overall customer funds. But as we've introduced more recently the yield, we'll be looking to more opportunities to attract savings and inflows and ultimately engagement with a broader suite of financial services.
Peter Christiansen, Analyst
Great. Thank you.
Operator, Operator
Your next question comes from the line of Jason Kupferberg from Bank of America. Please go ahead.
Jason Kupferberg, Analyst
Thank you. I was just looking at Page 18 of the shareholder letter, showing the Cash App gross profit mix. I think at least some of that is a new disclosure which we appreciate. It shows you become a lot less dependent on instant deposit financial services becoming a much bigger part of the pie. I think it was 38% in 2023. So I'm just wondering as you execute on the bank, the base strategy, is there any kind of target in mind in terms of the percent of Cash App gross profit that may come from financial services, say by 2026, as you pursue the Rule of 40 that year? And just separately, Amrita, real quick, any comments on free cash flow for 2024? Thank you.
Amrita Ahuja, CFO
Sure. Look financial services at 38% in 2023 as a percent of Cash App gross profit versus 29% two years prior, is obviously a key growth factor for us within Cash App, as you note in our new disclosure in the shareholder letter, and it's one that we're going to continue to focus on as we grow out the broader set of products. As you've been hearing today, and as you saw in Jack's note in the shareholder letter. So that is one that I would continue to focus on. We still have seen growth in instant deposit and other parts of the ecosystem, but just not as fast as some of the financial services products. So we'll continue to lean in there. With respect to free cash flow, I'd orient you to the trend lines across EBITDA. Obviously, the free cash flow metric is a different calculation, but it directionally where we expect to grow our profitability on an EBITDA basis, we also would expect to grow our free cash flow over time.
Jason Kupferberg, Analyst
Thanks.
Operator, Operator
Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead.
James Faucette, Analyst
Thank you very much. I wanted to ask about the seller business. It seems like the growth rate in the U.S. has slowed a bit, while international performance remains strong. I'm curious about how we should view the growth trends for the U.S. compared to international markets and any insights into when we might see the U.S. bottoming out and what growth rate you anticipate achieving, especially in light of your focus on product development as Jack has mentioned. Thank you.
Jack Dorsey, CEO
U.S. growth is a major priority for us, and we are currently directing a lot of our efforts toward restaurants, food, and beverage. As I mentioned earlier, we identify significant product gaps that we expect to address this year, which will enable us to accelerate our development and product progress, leading to improved results and outcomes. We will continue to expand globally, but I want to ensure we enhance our speed in the U.S. This acceleration is driven by the organizational changes we are implementing, how we package our products, and our focus on streamlining the onboarding process for users. Additionally, we are strengthening our go-to-market strategy.
Amrita Ahuja, CFO
Yeah, and I just add, you know in addition to our focus areas in the U.S., we can benefit from those product initiatives in international markets as well. And we're enthusiastic about what we see in the markets outside the U.S. We think we're less than 1% penetrated in those markets that we're currently in, outside the U.S. with a long runway for growth. And we saw GPV growth in the fourth quarter in the markets outside the U.S. grow 26% year-over-year, with gross profit growth about 28% year-over-year now representing 13% of Square's gross profit. And obviously, that's grown over time. So we have opportunities to continue to refine and push our product velocity in the U.S. and ultimately that will help with the significant TAM opportunity that we see outside the U.S. as well.
Operator, Operator
We will now take our last question from Andrew Bauch from Wells Fargo Securities. Please go ahead.
Andrew Bauch, Analyst
Thank you for taking my question. I wanted to revisit the assumptions around direct deposit that you've mentioned. It's encouraging to see the six times data point for those depositing over $2,000. Could you elaborate on the strategy for increasing the percentage of paycheck direct deposits in 2024 and 2025? Are there specific milestones you need to reach to achieve that growth?
Jack Dorsey, CEO
Hi. I believe the biggest opportunities lie in our product. We aim to ensure that accessing Cash App is very user-friendly and that users can easily understand its banking functionalities. Trust is essential; I want to invest my money in something I can rely on and that offers significant value. This value should be extensive, well-connected, and seamless. That’s the vision we have for Cash App. We already have many components in place, and this year, we will concentrate on refining them to provide a satisfying experience, similar to what people feel when they use a Cash App Card. Our goal is to implement this level of quality across all features. Trust is the foundation; it’s crucial for Cash App to be perceived as reliable and trustworthy, supported by a solid customer base. We are continually working to maintain and earn that trust. Additionally, we are focusing on what users can achieve with their money on Cash App compared to a traditional bank, emphasizing the unique benefits Cash App provides. It begins with peer-to-peer transactions, which are efficient and meet, if not exceed, user expectations. However, we have much work ahead to perfect this and many connections to leverage, including enhancing our existing functionalities.
Amrita Ahuja, CFO
And Andrew, I would highlight Cash App Card as an important aspect for us as we increase awareness of our financial services and ultimately direct deposit. Just as peer-to-peer drives awareness for Cash App, we view Cash App Card as a catalyst for promoting our financial services and banking products, as well as direct deposit. Currently, Cash App Card has 23 million monthly active users, growing at more than double the rate of our overall monthly active base at over 40%. This indicates that we have truly scaled our ability to drive awareness effectively. In 2023, we exceeded $1 billion in gross profit from Cash App Card, with growth three times higher than what we saw with instant deposit, where customers transfer their funds outside of Cash App. This indicates that we are providing more reasons for users to keep their funds within Cash App. The behaviors and engagement we’ve observed with Cash App Card have been strong, with not only an increase in active users but also greater spending per active user, resulting in significant overall growth in spending on Cash App Card in 2023. Additionally, customers using our banking products have shown high engagement, with Cash App Card monthly active users bringing in over twice as much inflow, 2.3 times more inflow, and those with direct deposit monthly actives bringing in seven times more inflow than peer-to-peer active users. This highlights a crucial point about Cash App Card that allows us to introduce users to a wider range of financial services, ultimately leading towards direct deposit.
Andrew Bauch, Analyst
Absolutely. Makes sense. Thank you.
Operator, Operator
Ladies and gentlemen, thank you for participating in today's program. This does conclude the program. You may all disconnect.